Paxos recovers its $500,000 'fat finger' Bitcoin transaction fee

[Agbamoni]

On September 10th, there was a Bitcoin transaction where the sender accidentally paid a much higher transaction fee. They paid $500,000 in fees to transfer only $200 worth of Bitcoin.

The good news is that F2Pool, a mining pool, confirmed on social media that Paxos, a crypto company, has returned the excess $500,000 in Bitcoin transaction fee to the rightful owner as a reimbursement.



Link to the confirmed transaction



Information Source Link 1

Information Source Link 2

[1714651102]

1714651102

[1714651102]

1714651102

[1714651102]

1714651102

[1714651102]

1714651102

[1714651102]

1714651102

[philipma1957]

It brings about an interesting issue. They were a business to business setup.

f2pool is large company.
paypal is large
paxos is large.

If you solo mine or mine at a few small pools there is no pool wallet coins are simply few direct to the miners.

I am U.S.A. based miners. I mine at this pool

https://pool.laurentiapool.org/#/miners
https://pool.laurentiapool.org/#/work

if we had hit it those coins go directly to us not to a pool wallet

I would have received 9.6 coins about 7.2 would have been a mistake
another miner would have received about 11.5 coins about 8 would have been a mistake
the third miner would have got 4 coins about 3 would have been a mistake

If I refund those coins 7.2 I would need quite a lot of assurance from PayPal and paxos that 194k of taxable income goes on their books not mine. I would need to create a legal agreement to refund them.

Well not my problem and some programmer is going to be in trouble for the error.

[mk4]

Makes you wonder how a company of such size($2.4 billion as per Forbes) makes such an amateur mistake. Like, probably just having a second person(which I'm pretty sure they can afford) to double check the transaction setups will mitigate such mistakes.

[SquirrelJulietGarden]

Well not my problem and some programmer is going to be in trouble for the error.

Do you still think it is an error or a set up plan by those companies?

Makes you wonder how a company of such size($2.4 billion as per Forbes) makes such an amateur mistake. Like, probably just having a second person(which I'm pretty sure they can afford) to double check the transaction setups will mitigate such mistakes.

Weeks ago, it was reported after analysis that it is error from an software which is responsible for processing transactions automatically. I doubt that it is an error but an intentional setup to create some fud on the market.

I agree with you that if it is an error by automatic processing, why it happened when Bitcoin need to be dumped by whales?

If it is not automatic error, but manual error, a big company must have double check or even tripple check when proceed transactions especially such very big transaction.

[mk4]

Weeks ago, it was reported after analysis that it is error from an software which is responsible for processing transactions automatically. I doubt that it is an error but an intentional setup to create some fud on the market.

I agree with you that if it is an error by automatic processing, why it happened when Bitcoin need to be dumped by whales?

If it is not automatic error, but manual error, a big company must have double check or even tripple check when proceed transactions especially such very big transaction.

I'd like a conspiracy theory from time to time, but how can this be "FUD" though? I don't think it can be mistaken even by dumb people that it's the case that this was Paxos' mistake — not some Bitcoin protocol bug or something.

[Pmalek]

@Agbamoni
Maybe you should simplify the second paragraph of your OP. The one where you are writing about F2Pool returning the coins to Paxos. You made it sound like Paxos returned the bitcoin. However, they were the recipient of the coins. I know what you wanted to say. But for clarity, I suggest an edit.

[Upgrade00]

I doubt that it is an error but an intentional setup to create some fud on the market.

An error in effecting a transaction does not create fud at all, it just calls into question the system they use to create transactions and even makes their platform less reliable to the public.

The trader sentiment will not be affected by that situation and it did not create a dip in the price a all.

[DooMAD]

Makes you wonder how a company of such size($2.4 billion as per Forbes) makes such an amateur mistake. Like, probably just having a second person(which I'm pretty sure they can afford) to double check the transaction setups will mitigate such mistakes.

Probably cost-cutting.  No one wants to pay for quality IT support and programming expertise now.  I work for a relatively big company and both our software and our website is atrocious.  Instead of outsourcing to a competent company, they try to do everything in-house and make an absolute mess of it. 

Everyone is looking for the cheapest possible way to do things.  And that's when mistakes happen.

[digaran]

So it was a big company mistakenly sending 20 bitcoins as fee and then a large mining pool who happened to mine that block, and at the end they returned the coins with no problem? Why does that sound very generic and usual? Lol.

If I refund those coins 7.2 I would need quite a lot of assurance from PayPal and paxos that 194k of taxable income goes on their books not mine. I would need to create a legal agreement to refund them.

Legally speaking, you could deny paying them those 7.2 coins back, right? Or is there a way to take them back legally if for example all other recipients agreed to give their coins back and only you were left alone refusing?

I have no updated information about new crypto laws, but I'd assume once you mine a block, no matter what, all the coins are yours. In legal terms of course.

[Upgrade00]

Legally speaking, you could deny paying them those 7.2 coins back, right? Or is there a way to take them back legally if for example all other recipients agreed to give their coins back and only you were left alone refusing?

There are no legal means to force the miner to repay the fees paid. There is no fixed amount for fees paid to miners to get their transaction confirmed so it cannot be capped at a certain range, one can argue there is an ideal range but you cannot fault a miner for accepting higher.

[BlackHatCoiner]

If it is not automatic error, but manual error, a big company must have double check or even tripple check when proceed transactions especially such very big transaction.

I honestly cannot fathom how a company would automate the Bitcoin transaction of $500,000. Why the hell? What's so expensive in manual work that makes you want to risk so much money for writing (probably non-reviewed) code which would automate that process.

If I refund those coins 7.2 I would need quite a lot of assurance from PayPal and paxos that 194k of taxable income goes on their books not mine. I would need to create a legal agreement to refund them.

Actually, that's an excellent point. I don't know how taxation works in the US, but if the pool sends you bitcoin, is it considered immediately capital that must be reported? Don't you guys report from realized profit only, when it comes to bitcoin?

[Casdinyard]

And there we have it. A lighthearted and kind conclusion to this shitshow of a story.

I didn't have doubts about F2Pool returning the money to the user, they are already established as it is, and they probably earn this much amount (and more!) just from the sheer amount of miners in their platform, this is but a dime to them so to speak. Not gonna lie though, as some of the people in this forum when news about this thing broke out I thought that this was a form of money-laundering scheme too, to make that 500 grand a little cleaner by expecting reimbursement but that's a little stupid and baseless looking back. Anywho, everyone got their happy endings, f2pool will surely receive more people coming in and trusting them moving forward just from this success story alone, and I hope this user's going to be a little bit more careful next time.

[hugeblack]

Everyone is looking for the cheapest possible way to do things.  And that's when mistakes happen.

In the past, I thought that such things might be due to tax evasion or money laundering^*, but it is clear that companies, in their attempt to reduce expenses, hire people or deal with the problem themselves, which makes them pay more in the costs of solving this problem.

Now, with thousands of blockchain analysis tools, the slightest event is enough to dim the spotlight, and it is difficult to ignore media pressure.

* Agreement with the mining pool, not to repay the money and consider it as net profit after paying the tax.

[Agbamoni]

@Agbamoni
Maybe you should simplify the second paragraph of your OP. The one where you are writing about F2Pool returning the coins to Paxos. You made it sound like Paxos returned the bitcoin. However, they were the recipient of the coins. I know what you wanted to say. But for clarity, I suggest an edit.

Thank you for the advice ill do that immediately. It should b clarified so that the information will be passed accordingly

[philipma1957]

Well not my problem and some programmer is going to be in trouble for the error.

Do you still think it is an error or a set up plan by those companies?

Makes you wonder how a company of such size($2.4 billion as per Forbes) makes such an amateur mistake. Like, probably just having a second person(which I'm pretty sure they can afford) to double check the transaction setups will mitigate such mistakes.

Weeks ago, it was reported after analysis that it is error from an software which is responsible for processing transactions automatically. I doubt that it is an error but an intentional setup to create some fud on the market.

I agree with you that if it is an error by automatic processing, why it happened when Bitcoin need to be dumped by whales?

If it is not automatic error, but manual error, a big company must have double check or even tripple check when proceed transactions especially such very big transaction.

Its an error. I mention my small mining pool with a small chance of hitting that block. But there are many unknown miners maybe 10% of all hash goes to unknown miners. This means they had a ten percent chance of never seeing that money.

Or a huge hassle to get it refunded.

Like I mentioned I would need a lawyer if my little pool hit it.

I likely would put 8 of the 19 btc in an escrow account until I and the other miners were sure we have no USA tax issues refunding it.

Some people mine fully anonymous if they hit the refund would not have happen.

It makes it plain and simple error. Shame on them for poor security.

If the send wallet had only 5 btc the worse mistake would be only 4.99 btc

[digaran]

Don't you guys report from realized profit only, when it comes to bitcoin?

Not sure about US, but in my country they have recently changed the tax laws, whatever I mean whatever comes to your bank account will count towards taxation, the reason which you received the money doesn't matter for governments any more, that's what philipma is saying, it takes a lot of efforts and proving it was a mistake.

Speaking from experience, especially crypto related services/companies triple check any amount larger than $1000 when they are transferring the funds, and by triple I mean at least 2 people check to see everything is Ok, hence this "mistake" makes no sense.

[BlackHatCoiner]

* Agreement with the mining pool, not to repay the money and consider it as net profit after paying the tax.

Again, I'm a little confused by the US tax system, but isn't transaction fee considered a transaction itself by the book? What difference would it make if they sent them $500,000 via bitcoin in secret? What matters is that miners collect money by the network.

Not sure about US, but in my country they have recently changed the tax laws, whatever I mean whatever comes to your bank account will count towards taxation

That's very strange. What if I owe some money to a friend? Should that transaction be equally taxable with realized profit from an investment?

[Z-tight]

I didn't have doubts about F2Pool returning the money to the user, they are already established as it is, and they probably earn this much amount (and more!) just from the sheer amount of miners in their platform, this is but a dime to them so to speak.

This isn't really about how big or established F2Pool is, it is a problem with this big companies like Paxos who think they can always have it their way, they are used to reversing, freezing and confiscating funds in their centralized system, so it may probably have been better if F2Pool had kept the money and distributed it to their miners to set a precedent, because BTC tx's aren't reversible. Even after the poll on X on what should be done with the funds, 35.9% voted they keep it, while 28.9% voted for a refund.

f2pool will surely receive more people coming in and trusting them moving forward just from this success story alone

Trusting them with what? They are a mining pool and they will continue competing for blocks with other pools and solo miners.

[AHOYBRAUSE]

Oh wow, I didn't expect to see a new development in this case.

I mean it was already crazy in the first place but now reading that the fee has been returned is even more astonishing than the original mistake.
Maybe there was some deal behind closed curtains or something but this really looks a little bit strange to me. How and why 2 such strange things happen is beyond me.

[NotATether]

Weeks ago, it was reported after analysis that it is error from an software which is responsible for processing transactions automatically. I doubt that it is an error but an intentional setup to create some fud on the market.

If that was intentional, it would be very risky and dangerous for Paxos to be doing that because they have a legal obligation from Paypal to secure those funds in their custody. If they wanted to play around with the market like FTX which had a bunch of amateurs running everything, there would be lawsuits immediately sweeping through from Paypal.

* Agreement with the mining pool, not to repay the money and consider it as net profit after paying the tax.

Again, I'm a little confused by the US tax system, but isn't transaction fee considered a transaction itself by the book? What difference would it make if they sent them $500,000 via bitcoin in secret? What matters is that miners collect money by the network.

Not sure about US, but in my country they have recently changed the tax laws, whatever I mean whatever comes to your bank account will count towards taxation

That's very strange. What if I owe some money to a friend? Should that transaction be equally taxable with realized profit from an investment?

Mining fees on the blockchain do not count towards taxes until you cash them out for US dollars or whatever fiat currency your country uses.

If you get a refund of that money, that doesn't count for taxes because it does not classify as capital gains <i.e. you didn't earn that money, you simply got it back>.