Coins Sent to Wrong Address? Easy User Mistakes Mean Profits for Exchanges
Exchanges are profiting from easily-made user transaction errors, charging large “cross-chain recovery fees” or simply not recovering tokens sent to wrong addresses. The problem has become more serious recently as inexperienced newcomers encounter networks with similar transaction formats — like Bitcoin/Bitcoin Cash and Ethereum’s ERC-20 tokens.
Policies Vary but Mistakes Are Easy to Make
Many exchanges, such as HitBTC, have a policy that erroneously-sent transactions will not be refunded. Some have a “cross chain recovery policy” where support will recover the tokens at a price — for bitcoin-derived tokens, CoinExchange.io charges a flat 0.05 BTC per recovery, Bittrex charges 0.1 BTC. Bittrex also only recovers amounts over $5,000 USD at the time of sending.
For ETH sent to an ERC-20 token address, CoinExchange charges 10 percent of the transaction amount. For ERC-20 tokens sent to wrong addresses, there’s a 0.5 ETH recovery fee.
At current ETH and BTC prices, that’s anywhere from $230 USD (for ETH) to $1,100 (for bitcoin).
(Pre-SegWit) Bitcoin and Bitcoin Cash use identical address formats, making it extremely easy to send coins to a wrong address. There are many reports of this happening. The proliferation of ERC-20 tokens in 2017’s ICO gold rush have created a similar problem for Ethereum.
If the amount is substantial, it could be worth paying the hefty fees — creating an extra income stream for exchanges. Smaller traders will likely balk at the charge. If a user forfeits the lost coins, or if the exchange won’t recover them at all, that’s more profit.
Some Services Will Recover for Free, Others Won’t
We’ve reported before how even experienced users can fall foul of these errors. There have been several anecdotal reports of Bitcoin.com wallet users sending BCH to BTC addresses — which Bitcoin.com has also reportedly helped to resolve (without charge).
Such wallets have locally-stored keys unique to the user, though. With exchanges it’s another matter — multiple users might be sending transactions to the same address. Verifying and refunding those mistaken transactions, they say, is inherently time-consuming and risky.
But then, their software manages to keep accurate records of all correct transactions to the exchange, so why is it so difficult to verify incorrect ones? According to this user account, ViaBTC verified and refunded BTC sent to a BCH address — also without charge.
Bitsonline has reached out to CoinExchange and Bittrex to seek further explanation for the high recovery fees.
With So Many Wrong Transactions, Mistakes Are Time-Consuming – Or Lucrative
One user we spoke to in a chat group posted screenshots of his claim for 0.3 BCH ($433 at press time). That’s a non-trivial amount for many traders, especially those in lower-income countries. Yet the exchange requested the flat 0.05 ($550) BTC fee, saying “please appreciate we have a very large backlog of these mistakenly sent deposits”.
If that’s the case, some exchanges are making tidy profits from mis-sent transactions, one way or another.
CoinExchange.io justifies its policy on its support page, saying:
“The recovery of Cross-chain deposits is an inherently dangerous and a very time consuming process. Not all deposits can be recovered and dependent on which currency has been mistakenly sent to which address can influence difficulty, time and security risk involved.”
As this support forum on HitBTC indicates, there are indeed numerous wrong-address transaction errors. Search for “cross-transaction error” or “recovery” on Google and you’ll find hundreds of cases. Dealing with these is obviously time consuming and expensive, as CoinExchange said.
However any company that handles customer funds, whether it’s a cryptocurrency exchange, PayPal or your bank, should expect a raft of such support tickets. Is it good policy to charge users high fees for error correction? Or should users expect it as part of basic account-maintenance?
What’s your take? Who should lose (or gain) from easy-to-make errors? Let’s hear your thoughts.
Images via Pixabay