Who is paying very very large fees when not needed and why?

[DaveF]

I have been seeing more and more very large fees paid for transactions at times well over 20x what is needed to get into the next block.
Is this just badly broken software doing fee estimation or something else?

Looking at: https://btc.com/000000000000000000076e53c720e850cc46fcbc42a65f7aa0917755daec3c22
We have 2 transactions at over 2k sat/vbyte
1 at 800+
1 at 500+
and dozens at 200 to 300+
You could have gotten into the block @ 30 sat
If you wanted to be SURE, then do 60 sat.

WTF?

This seems to be happening a lot lately, either I am just paying more attention to it and it has always been happening or???

-Dave

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[Bitcoin_Arena]

1. Perhaps someone who doesn't know what the fee rate of sats/byte is?
So. when they see a fee rate suggestion of 2000 sats/byte they have no freakin Idea what it is or how low the optimal transaction fee rate is right now.

2. With the exception of very few transactions, Most of the high fee rate transactions seem to be spend huge amounts of BTC. So the people transacting don't care about such fee rates as they still seem to small as compared to what they are spending.

[Quickseller]

I have been seeing more and more very large fees paid for transactions at times well over 20x what is needed to get into the next block.
Is this just badly broken software doing fee estimation or something else?

Looking at: https://btc.com/000000000000000000076e53c720e850cc46fcbc42a65f7aa0917755daec3c22
We have 2 transactions at over 2k sat/vbyte

I think cf6ddaf4318de8ffeb8f917c2f877eeffe5b2eb80aaa9763b72148ba16c1ab38 is either Binance or a customer of Binance. IMO 485d09130be0ce79d825e118dc6c26463d934e278eb782114ae5e11463d0269c is probably also Binance, but the link to other transactions involving the sending address is less conclusive.

Poloniex paid 350+ sat/vByte in that block.

It seems that Poloniex is behind the 300+ sat/vByte transactions. I think Binance is probably behind the 800 sat/vByte and higher transactions in the block you cite. My guess is they have a misconfigured wallet that creates transactions. The majority of their withdrawals are handled via automation, and as long as their wallet balance matches what their records say it should be, there probably isnt anyone who is actually looking at the transactions they process unless someone complains about something.

[BitMaxz]

I think it's not misconfigured they intentionally paying a large transaction fee to help and rewarded miners. I just heard in a tweet before about that I don't know which exchanges said that but my guess it's from CEO Binance tweet to attract miners to mine on their pool.

About that block, the 2nd and 3rd transaction that pays 2,283 Sats/vByte transacted almost 5-6 million in value so paying with that fee is fair enough it's around 162.99
in USD. So my guess it was being made from a Binance customer that doesn't know how to calculate the transaction fee and doesn't want their transaction to stuck on the network.

Take note Binance is now operating a pool so they have control over the transaction which one will include on the block so they look for transactions with higher fees to include them in the blocks they mined(To earn more rewards).

[pooya87]

I believe most of the times this is poor design combined with the sender not wanting to have their transaction stuck. For example a service making payments wanting to avoid the headache of answering the customer why their money "hasn't arrived yet" that also has a terrible backend with a poor code that suggests much higher fees than just paying a slightly higher one.

Sometimes they (both some services and some phone wallets I've seen) use malicious third party fee estimation services such as bitcoinfees.earn.com that intentionally report a ridiculously higher fee.

[nc50lc]

WTF?

I noticed that their absolute fee are all too "exact", suggests that they've set the total fee when creating the txns, not the fee rate.
Sender(s) may be unaware that the prioritization is based from the fee rate or doesn't care about the extra fee and most likely using a client that can input/edit absolute fee other than the fee rate.

For example, those first three with 2,291sat/vB (x2) and 822.0sat/vB have a 0.005BTC fee, and some of the rest with extremely high fee looks the same but lower (0.002BTC absolute fee).

[HCP]

Yeah, it looks like some preconfigured system that is setup using absolute fees as opposed to calculating fee rates. Not sure why you would do that, but there you go... As someone mentioned above, when you're transacting millions, nickel and diming on fees isn't really a concern. What's $150-200 when you're shifting $5mil worth of coins?

Aside from these cases of absolute fees being used by what appears to be commercial entities... another common scenario I have noted for ridiculously high fees, is malware/theft. The thieves tend to send with very high fees to (I assume) try and prevent any chance of a double spend and, of course, guarantee next block inclusion of their transaction.

[Quickseller]

As someone mentioned above, when you're transacting millions, nickel and diming on fees isn't really a concern. What's $150-200 when you're shifting $5mil worth of coins?

These are exchanges that are most likely processing withdrawal transactions. This is not the exchange's actual money that is being moved, it is money they are hold for and on behalf of their customers, and will have to make up for high transaction fees in the form of trading fees (or other fees) paid by their customers.


If they are paying $200 when they could have paid $2 10,000 times, all of a sudden, they have paid almost $2 million extra worth of transaction fees.

[franky1]

I have been seeing more and more very large fees paid for transactions at times well over 20x what is needed to get into the next block.
Is this just badly broken software doing fee estimation or something else?

Looking at: https://btc.com/000000000000000000076e53c720e850cc46fcbc42a65f7aa0917755daec3c22
We have 2 transactions at over 2k sat/vbyte

if you look at the first few transactions
bc1qmex.. bc1qmex bc1qmex

its the bitmex exchange
they seems to be shuffling funds around in their coldwallets

strangely they pay 0.005btc for 190 and 160btc
0.005 for 1.4btc
0.002 for 24btc

[o_e_l_e_o]

I think it's not misconfigured they intentionally paying a large transaction fee to help and rewarded miners. I just heard in a tweet before about that I don't know which exchanges said that but my guess it's from CEO Binance tweet to attract miners to mine on their pool.

This doesn't really make sense. They aren't holding back their own transactions to only be mined by their own mining pool. Doing so would introduce huge delays as their transaction would only be confirmed when their mining pool found a block, which could take hours. They are broadcasting their transactions normally, meaning they are not incentivizing miners on their pool specifically.

Take note Binance is now operating a pool so they have control over the transaction which one will include on the block so they look for transactions with higher fees to include them in the blocks they mined(To earn more rewards).

All pools do this, with the exception of mining their own transactions with a lower fee. Again, this does not explain these high fee transactions.


Exchanges shoulder most of the blame for this, but they also start a vicious circle. Lots of people use automatic fee suggestions without paying attention or maybe not understanding what an appropriate fee is. These algorithms see some transactions paying 100 sats/vbyte and think they need to match that, so they do, and people blindly accept it. This starts a chain reaction of people paying high fees, which just makes it worse and worse until we reach a weekend and things settle down a bit. If everyone paid attention to what they were paying, everyone could constantly save about 90% of their fees.

[DaveF]

WTF?

I noticed that their absolute fee are all too "exact", suggests that they've set the total fee when creating the txns, not the fee rate.
Sender(s) may be unaware that the prioritization is based from the fee rate or doesn't care about the extra fee and most likely using a client that can input/edit absolute fee other than the fee rate.

For example, those first three with 2,291sat/vB (x2) and 822.0sat/vB have a 0.005BTC fee, and some of the rest with extremely high fee looks the same but lower (0.002BTC absolute fee).

Did not think of that for some reason.
It's been a while since I did any real trading on exchanges and while I do remember some of them charging high fees I also remember a lot of them not actually paying them. It was just another profit center...

You would think that they would stiff be charging .005 and paying .000005 and pocketing the difference. That's just good business.

As someone mentioned above, when you're transacting millions, nickel and diming on fees isn't really a concern. What's $150-200 when you're shifting $5mil worth of coins?

These are exchanges that are most likely processing withdrawal transactions. This is not the exchange's actual money that is being moved, it is money they are hold for and on behalf of their customers, and will have to make up for high transaction fees in the form of trading fees (or other fees) paid by their customers.


If they are paying $200 when they could have paid $2 10,000 times, all of a sudden, they have paid almost $2 million extra worth of transaction fees.

And if you have outside investors that is when bad things happen at times to management....

Yeah, it looks like some preconfigured system that is setup using absolute fees as opposed to calculating fee rates. Not sure why you would do that, but there you go...

Aside from poor preconfigured system, it's also possible it's set up by intern or worker who're underpaid.

Or they were undertrained. Or overworked.

Well thanks everyone I guess that answerers what I asked.

-Dave

[Kakmakr]

I can tell you from first hand experience that "mistakes" does happen, because I have paid huge fees, without even noticing. I have swept a Paper wallet with 1 bitcoin once and paid $1000 in fees. The fee estimation on some of these wallets are crazy and you have to double check your fees (convert it to Fiat currency value) to realize how high it is.

Things like this happens when you are in a hurry and you just accept the default fee settings and when you check your balance, you realize that $1000+ was charged in damn fees. 

[BlackHatCoiner]

I have swept a Paper wallet with 1 bitcoin once and paid $1000 in fees.

Cheers to the miner who confirmed it. 

Exchanges shoulder most of the blame for this, but they also start a vicious circle. Lots of people use automatic fee suggestions without paying attention or maybe not understanding what an appropriate fee is. These algorithms see some transactions paying 100 sats/vbyte and think they need to match that, so they do, and people blindly accept it. This starts a chain reaction of people paying high fees, which just makes it worse and worse until we reach a weekend and things settle down a bit. If everyone paid attention to what they were paying, everyone could constantly save about 90% of their fees.

So whose fault is it? Exchanges? People who blindly follow them? The developers who coded algorithms of falsely fee estimation? There are even some wallets that don't show you what's the total amount of coins you'll pay in mining fees. They only reveal you the sat per byte which won't assist the average user. 

Then you have another problem to face; most of the exchanges haven't adopted SegWit native yet, which makes their users not doing it too.

[d5000]

another common scenario I have noted for ridiculously high fees, is malware/theft. The thieves tend to send with very high fees to (I assume) try and prevent any chance of a double spend and, of course, guarantee next block inclusion of their transaction.

Some weeks ago I listened to an interview with J. Schnelli (core dev/maintainer) and he suspected this may be an issue. It seems that some Chinese mining pools like Bitmain (not only the infamous Marathon pool) already use black lists for some addresses they relate to criminal activity, reacting to requests from the government, and thus some criminals broadcast their transactions with ridiculously high fees to be included within the next block not mined by one of the "blacklisting" pools.

It may be more an effect of these people "panicking" than a real necessity of them, because blacklisting pools are still not the overwhelming majority, so with a high, but "normal" fee even a blacklisted entity should get confirmed their transactions in a few blocks.

This may however not apply to the transactions the OP linked to.

[pooya87]

and thus some criminals broadcast their transactions with ridiculously high fees to be included within the next block not mined by one of the "blacklisting" pools.

I'm not sure what rate you have in mind when you say "ridiculously high fees" but this makes no sense!
1) If they pay a high fee (like 1000 sat/vbyte for a 10 sat/vbyte priority) it won't affect the decision of the mining pools. If any of them is ignoring the transaction they will continue ignoring it and the rest will see it as a high paying tx no matter where it is coming from. In this case if they pay the high priority fee (11 sat/vbyte) it will have the same exact effect!
2) If they pay a very high fee (like 0.1-1BTC) then it may start affecting the decision of the mining pools, for example the one that is ignoring the transaction will have enough incentive to change their mind.

Apart from a handful of transactions in second group (which were never linked to anything criminal AFAIK and were most probably mistakes) the rest are in group 1.

[hugeblack]

The reason is that many people use a multi-currency wallet to store as many cryptocurrencies as possible, and those wallets are poor in estimating fees, and many users focus on the speed of transfer rather than paying lower fees because they mostly use Bitcoin for speculation.

These wallets are evolving in terms of accepting more coins and not in making fees looser because it is not what users want.

[o_e_l_e_o]

So whose fault is it? Exchanges? People who blindly follow them? The developers who coded algorithms of falsely fee estimation?

All of the above. Exchanges tend to start the process since they just pay the same ridiculous flat fee all the time, but other people not paying attention is what perpetuates the cycle.

There are even some wallets that don't show you what's the total amount of coins you'll pay in mining fees. They only reveal you the sat per byte which won't assist the average user.

I actually don't think this is necessarily a bad thing. Lots of users incorrectly think of fees as a total amount, instead of a rate. Saying "I paid 10,000 sats in fees" is a meaningless statement without knowledge of the transaction. People paying 10,000 sats for every transaction, think that is a "fast fee" will result in some being vastly underpaid and others being vastly overpaid.

[d5000]

1) If they pay a high fee (like 1000 sat/vbyte for a 10 sat/vbyte priority) it won't affect the decision of the mining pools. If any of them is ignoring the transaction they will continue ignoring it and the rest will see it as a high paying tx no matter where it is coming from. In this case if they pay the high priority fee (11 sat/vbyte) it will have the same exact effect!

My explanation would be: If we really had the situation that 95% of the mining pools (better: the mining pools with 95% of the hashrate) were censoring transactions coming from blacklisted addresses, then it becomes crucial for the blacklisted entities to get included into any possible block mined by the remaining 5%. They cannot know how the evolution of the fee will be until the next block found by the few non-blacklisting pools, so it would be rational to choose a higher fee than the current "high priority fee", perhaps as high as the highest "threshold" in the last 24 hours or so, i.e. the block whose minimal fee for inclusion in the block was highest.

But as I wrote in the second paragraph, I don't believe we have this situation currently, blacklisting pools may make up perhaps 50-60% of the hashrate. Instead it could be a mix of high margins (of the criminal activity) and a sense of panic/urgence.

[o_e_l_e_o]

But as I wrote in the second paragraph, I don't believe we have this situation currently, blacklisting pools may make up perhaps 50-60% of the hashrate. Instead it could be a mix of high margins (of the criminal activity) and a sense of panic/urgence.

As far as I am aware, blacklisting pools make up a much smaller percentage of the hashrate than that. And even if we reached the point of 95% as you suggest, then the logical option for such blacklisted users is to simply enable RBF and broadcast at a fee within 1 vMB of the tip. If they don't get confirmed for several blocks and the fees change markedly, they can bump their fee with RBF. There is no need for them to be paying ridiculously high fees.

[hosseinimr93]

And even if we reached the point of 95% as you suggest, then the logical option for such blacklisted users is to simply enable RBF and broadcast at a fee within 1 vMB of the tip.

If blacklisting pools own 95% of the total hashrate, they can simply reject the blocks mined by the 5% non-blacklisting pools too.

Let's say my transaction is rejected by blacklisting pools and it's included by a non-blacklisting pool.
Most probably, the 95% blacklisting pools won't add any block to the chain including my transaction. We will have a hard fork, then? Or maybe even non-blacklisting pools will join the blacklisting pools and will add the new blocks to the longer chain?