For OTC Traders: Beware of "Flash bitcoin" or Fake Bitcoin Transaction

[Pokapoka124]

Internet scam is on the rampage and is evolving everyday. It's hard to keep up with them these days. I recently started OTC trading, even with the government ban on bitcoin there is even a more higher demand now. With the good things also come the bad, scammers have found a way to con traders of their money.
A client supposedly sent me bitcoin and was pressuring me to pay up even when the coin had not confirmed yet on the blockchain network. I told the client to wait for at least one confirmation. Turned out it that it was a fake transaction. The coin didn't confirm and disappeared after 48 hours


The Big question is how are scammers able to do this?
My Advice

1. Please wait for at least 1 confirmation before paying your clients.

2. You're 100% responsible for all coins you trade. Only pay trusted partners before confirmation.


3. Ask your clients to send hash after coin is sent, it helps in tracing coin.

4. Don’t just buy coins.... Study blockchain technology

Thumbs up to all great guys taking full responsibility.

P.S: I call such coins "flash coins" because it appears and disappears after a while

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[jackg]

There's a part of the transactions called an rbf flag (replace by fee). You can check any transaction on a blockchain explorer and it'll normally say if this flag is on or off (I think blockchain.com has it but blockchair definitely does).. This is the flag that allows someone to double spend a tx but there are other way to double spend it - they're just more complex and might not be what a scammer knows about.

If you're trading higher amounts, 1 confirmation might not be as good as 3 or 6 and if you're agitated by waiting that long - you should probably be using a centralised exchange.

[Charles-Tim]

Only pay trusted partners before confirmation.

Nobody should be trusted, making sure the transaction is confirmed should be the right way, especially if the transaction support replace-by-fee.

4. Don’t just buy coins.... Study blockchain technology

Blockchain technology is more wider than this, this is just a simple rule that unconfirmed transactions should not be considered valid until it is confirmed.

I call such coins "flash coins" because it appears and disappears after a while

Like you mentioned before, it is called double-spend transactions, because the bitcoin is diverted to another address with different txid after the fee is pump along.

There's a part of the transactions called an rbf flag (replace by fee). You can check any transaction on a blockchain explorer and it'll normally say if this flag is on or off (I think blockchain.com has it but blockchair definitely does).. This is the flag that allows someone to double spend a tx but there are other way to double spend it - they're just more complex and might not be what a scammer knows about.

Blockchain.com is one of the blockchain explorer that do not want to upgrade, they do not indicate transactions to support replace-by-fee or not. Also one thing I do not like about blockchain.com explorer is it does not use sat/vbyte as the feerate, instead stick to the old one, sat/byte. Blockchair.com is better.

[stompix]

The Big question is how are scammers able to do this?
They use a special software generates fake Bitcoin transactions into the bitcoin network for hours and stays unconfirmed before it finally disappears. The software uses the bitcoin double spend notion. It generates a fake bitcoin transaction, but since the blockchain was built in such a way to counter such attacks, the transaction will be made invalid after 48 hours.

There is no such thing as fake transactions in this case, and there is no special software that creates mysterious transactions that vanish in 48 hours, that was a valid transaction when it was generated otherwise it wouldn't have been broadcasted by the network and admitted into the mempool

The trick is pretty simple, the scammers take advantage of the high fees needed to confirm a transaction and send you one with a very low fee that with the mempool full will never be confirmed, then after receiving their payment or product from you they simply spend the funds with a higher fee that gets confirmed immediately and your transaction is invalid since the inputs have been already spent.

Bottom line, never send anything out before the transaction is confirmed, and 6 confirmations would be even better.

[tranthidung]

Blockchain.com is one of the blockchain explorer that do not want to upgrade, they do not indicate transactions to support replace-by-fee or not. Also one thing I do not like about blockchain.com explorer is it does not use sat/vbyte as the feerate, instead stick to the old one, sat/byte. Blockchair.com is better.

In fact, they have. Check this transaction: https://www.blockchain.com/btc/tx/34128a5410e7a75c25b0770c584d45538818b6b4c522a84e8828607462a7b31a

You will get fee like this and the explorer displays it in sat/B and sat/WU.

Fee
0.00019564 BTC
(52.171 sat/B - 16.764 sat/WU - 375 bytes)

You can compare it to blockchair.com explorer

They provide the same thing but in different ways and blockchair.com explorer provides a more friendly figure.

Blockchain.com explorer does not have information for Replace-by-Fee.

Blockstream.info explorer provides information in ETA as in 4 blocks (2.03 vMB from tip). It give a different information than the Priority in blockchair.com explorer.

[Coyster]

4. Don’t just buy coins.... Study blockchain technology

I second this, cause quite a lot of people do not know that in any Bitcoin transaction, there is a certain number of confirmations (6 at best) required, before it can be said that you've successfully received the coins, even some vendors or merchants (some I've personally come in contact with) aren't knowledgeable on this and had to either learn the hard way (giving out products and then failing to receive funds) or through the stories of others who lost funds via the double spend modus operandi.

Having said that, "your Bitcoin is your responsibility", and if you're yet to know how to use it (that means covering all the risks concerns, security protocols and other whatnots), then you prolly shouldn't use it till you've acquired adequate knowledge on how to "be your own bank".

[Charles-Tim]

In fact, they have. Check this transaction: https://www.blockchain.com/btc/tx/34128a5410e7a75c25b0770c584d45538818b6b4c522a84e8828607462a7b31a

You are not getting me right. I am not implying blockchain.com explorer is not representing the feerate using weight of the transaction, but it is not using vbyte to represent the weight. To send from segwit supported wallet, the wallet fee estimation will be in sat/vbyte. Also checking mempool online, the transaction is in sat/vbyte. It not indicated on blockchain explorer, people can think it is sat/byte also, but they are different. But both (sat/vbyte and sat/byte) are clearly used on blockchair.com in which the difference can be seen as the feerate will be different.

[Findingnemo]

My Advice

1. Please wait for at least 1 confirmation before paying your clients.

2. You're 100% responsible for all coins you trade. Only pay trusted partners before confirmation.


3. Ask your clients to send hash after coin is sent, it helps in tracing coin.

4. Don’t just buy coins.... Study blockchain technology

5. Thumbs up to all great guys taking full responsibility.

P.S: I call such coins "flash coins" because it appears and disappears after a while

Scammers are taking the advantage of high network fee to scam people and exactly what they are doing is double spending.

You should never trust anyone no matter trusted or not, once you got 6+ confirmation then you can consider that the transaction is completed so don't release or pay funds to the seller.

[Lordhermes]

The trick is pretty simple, the scammers take advantage of the high fees needed to confirm a transaction and send you one with a very low fee that with the mempool full will never be confirmed, then after receiving their payment or product from you they simply spend the funds with a higher fee that gets confirmed immediately and your transaction is invalid since the inputs have been already spent.

Yes, I did some transaction to remitano some time ago, on my btc transaction history, I saw that broadcasted transaction was rejected/invalid, a new verified one was followed immediately after bumping with high fee, the picture will depict what I'm actually saying.



Btc transactions are not fake.

[khaled0111]

They use a special software generates fake Bitcoin transactions into the bitcoin network for hours and stays unconfirmed before it finally disappears.

Actually, you don't need any special software to do this. Electrum, for example, allows you to do it with the click of a button (literally).
All it takes is to broadcast a rbf transaction with a very small fee rate to guarantee it won't confirm for a long time. Then, from yhe "history tab, "right click on the transaction hash and select "cancel (double spend)".

It generates a fake bitcoin transaction, but since the blockchain was built in such a way to counter such attacks, the transaction will be made invalid after 48 hours. The downside to this is that some trader fall under pressure of some clients to pay up and don't wait for confirmation.

The transaction you saw was not fake, it was valid. fake or invalid transactions will be rejected by the bitcoin nodes and won't make it to their mempools.

[tranthidung]

You are not getting me right. I am not implying blockchain.com explorer is not representing the feerate using weight of the transaction, but it is not using vbyte to represent the weight.

The blockchain.com explorer gives same information (as I said) but in different representation that is less friendly for people (they have to do own calculation). Blockchair.com would rather display fee rates in two ways (sat/byte and sat/vbyte) that makes it more friendly.

To send from segwit supported wallet, the wallet fee estimation will be in sat/vbyte.

Not true. Have you ever paid your attention when you use Electrum wallet? It shows sat/byte for fee estimator.

• All about transaction fees in Electrum
• The version 4.1.1 (not newest) still shows sat/byte

Also checking mempool online, the transaction is in sat/vbyte.

It depends on the mempool observer tool you are using. The sat/byte or sat/vbyte is not the universal format for all people, all mempool observer tool or wallet.