Topic: Paxos recovers its $500,000 'fat finger' Bitcoin transaction fee (Read 599 times)

This is good I don't know some individual can genuinely refund accidental transaction to the rightful owner. Now i believe we have trusted members in the forum.

mainly its the lack of taint.. but there are in other instances of scammers who try to sell parts of a reward as "rare sats" under many guises for a premium

what benefits a company can have if they have fresh coins? in my mind i just know one benefit: they can deposit it in exchange without any fraud issues,
what are the other benefits?

In cryptocurrency, no one is above mistakes. It can happen to anyone and that is why we are advised to be very careful during transactions. I remember not quite long that theymos made a mistake and sent coins upto $1k to a newbie who refunded him.
Although, people has been pointing towards the conspiracy way which is also very much possible. But let us assume the only thing that happened is what we are aware of, and it is fine there is a refund.

this particular event was not an orchestrated attempt to launder (due to the public broadcast of the TX pre-confirm). thus no control over where the value would end up. and also the pool itself used rewards that are linked back to the spend.. so its not like they tried to hide things

however laundering IS possible.
if you have a contract with a pool to give them value as fee's(via private pushtx rather than public relay) it will destroy the utxo taint path of the value when spent as a confirmed tx. and become a 'fresh coin' in block reward form. whereby a pool could use other rewards unlinked to the spend or other stash of coin to pay out to a new address of the spender thus the spender gets value back with different/no taint

but as i said. this event of paxos vs f2pool was not that, due to lack of organisation and methodology

however paxos does now have 19.8btc of 'freshcoin' straight from a mining reward. so although not orchestrated laundering. they do now have the benefit of freshcoin with no taint

dude you are wrong it is not money laundering. no one in their right mind would launder money it this manner.

read what franky1 said.

paxos and f2pool didnt do a private deal. this is obvious because instead paxos doing a private pushtx of the transaction to only f2pool to ensure only f2pool mined it. the transaction was released to the entire pre-confirm relay network meaning any pool could have grabbed it. it was just luck that f2pool grabbed it first and solved a block containing it.

this however demonstrates that paxos wallet software has a bug or there was a human error involved

Are you suggesting that these two companies were merely trying to gain clout on social media by showcasing these transactions? I don't think so. It's pretty clear when we look at the transaction details and how they unfolded. Both of these companies have solid reputations in the Bitcoin mining and transaction space. What we should acknowledge here is that by reimbursing the accidental Bitcoin transaction fee, they have not only earned more trust from their users but also demonstrated to the world that correcting excessive transaction fees is possible. This shows their commitment to serving the broader Bitcoin community rather than solely focusing on making huge profits.

nope F2pool did not take 'some fee' from the 19.8btc amount. they gave the full fee 100% back

looking at the original payment error
https://www.blockchain.com/explorer/transactions/btc/d5392d474b4c436e1c9d1f4ff4be5f5f9bb0eb2e26b61d2781751474b7e870fd
from                                                                   to
bc1qr35hws365juz5rtlsjtvmulu97957kqvr3zpw3       bc1qr35hws365juz5rtlsjtvmulu97957kqvr3zpw3
19.89514072                                                         0.06595313

                                                                            1FUPHrrscTwuJN93aSuNV6nHERDGyZAebM
                                                                            0.00256543

                                                                            1H1nsFGPHFNVBVbrQY2tPxnbWrxuMyGHmh
                                                                            0.00207202

                                                                            bc1qn648pv0jn4m6tpt8nvg58m69x9tq2mfr06m94r
                                                                            0.00193031

                                                                            1CVfqCNnfRYsBjEn3A592iNz96FRp32ZcC
                                                                            0.00153351

fee =19.82108632 (based on math of the above ('from' minus 'to' = fee))

the return/refund
https://www.blockchain.com/explorer/transactions/btc/1b9adb2878fce5cd1b6a11a011e3965f904829228d57cf90ca6731cd501890c6
bc1qr35hws365juz5rtlsjtvmulu97957kqvr3zpw3
19.82108632

is the exact amount of the entire fee(100%).. meaning paxos who made the error paid absolutely no fee at all to send the
small amounts to:
1FUPHrrscTwuJN93aSuNV6nHERDGyZAebM
1H1nsFGPHFNVBVbrQY2tPxnbWrxuMyGHmh
bc1qn648pv0jn4m6tpt8nvg58m69x9tq2mfr06m94r
1CVfqCNnfRYsBjEn3A592iNz96FRp32ZcC

so f2pool didnt even take a cut for the refund. nor even a fair fee amount for the transaction in question

It was a nice gesture from the mining pool. But doing so would greatly defeat Bitcoin's original purpose. Wasn't BTC created as a decentralized, permission-less cryptocurrency? Since when do we need to return TX fees because of a mistake? F2Pool returned the funds because a prominent company (Paxos) made a mistake. But what if it was an ordinary person like you and me? I doubt they will do the same.

What happened recently, tells us BTC is becoming no different than banks. After all, centralized mining pools dominate the network. This is just like ETH's "The DAO" hack where funds were returned to the original investors. The ETH blockchain was "rolled back" as a result. I believe the whole point of crypto/Blockchain tech is about transaction finality, and decentralization. Unfortunately, players with big economic interests having been moving Bitcoin away from its original purpose. As long as there's money to be made, nothing else matters. Who knows what would be of Bitcoin in the future? Just my thoughts

Looks like money launderung, haha In general, such things are quite suspicious. Also, it could be a media scandal, made solely for an ad campaign... Such things don't happen with people with no $500,000, and things that happen with people having these sums are always really suspicious... So, in general, a good news is that money can be returned in such cases.

AFAIK, They only refund the overpaid amount and take some fee from the 19BTC original fee. I remember reading the owner of mining pool rant tweet about this incident and mention about the fees IIRC.


I think it can still possibly tracked down since most of miners exchange their coins on exchange. They probably do KYC since no one would expect an insane transaction fee like this. But I wonder if he/she will refund voluntarily.

Looking at the nature of the transaction , coins were sent with an overpaid transaction fee, but seeing f2pool refunded this fee does this mean this transaction cost Paxos zero satoshis  or maybe some special deal was made and btw,what of the cost of energy consumed during the mining process is this not to be factored in??

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I wonder how this transaction would have gone had a private miner mined this block with the ~$500k

Not if you are mining. Trust me it goes to  straight to the addresses listed if this pool hits a block
 https://pool.laurentiapool.org/#/work

I am U.S.A. my address is kyc. If I refund the 7.2 coins I need multiple certified documents from paxos to show why it was an error and I refunded overpayment.

Plus I am not sure the IRS would consider it a refund of an error they may say I simply gave them back money I did not have to give.

My mom worked for IRS 23 years My wife worked for IRS 33 years I worked for them 18 months. I am a degreed accountant from Queens College I know a bit about USA tax law and I simply am not sure what the ruling would be for this case.

I am not sure so I did a quick google search. I did not find Antpool among the first 20-30 results. But BitClub mined a block back in 2021 where some individual paid almost 300 BTC in fees by mistake. The article doesn't mention if the coins were returned or not.

In a second example I found, there is talk about an Ethereum miner who received over 7,600 ETH by mistake in fees. Those coins were confirmed to have been returned to the sender.

I am sure there are more examples, but they have been burred under the most recent Paxos and F2Pool case in the search results.

Not automatically by clicking a magical button if that's what you are asking. But the pool that mines the block with the problematic transaction can return the coins if they want.

Guys got really lucky f2pool mined the block, because most pools wouldn't even return the funds at all. Paxos should send them a tip they deserve it. As to taxation, what happens normally when somebody sends you Bitcoin by mistake and you send it back? I'm not a tax guru but there should be some easy solution...

I know f2pool's reputation was never at risk but if they didn't refund that 20BTC the people's mind may become 0.01%-1% negative(people think they are bad they didn't returned the btc which come to them by mistake), instead they returned their 20btc so the reputation is increased people will trust f2pool more. this is right move they did according to business point of view also.

Take note that F2Pool's reputation was never at risk in this situation, all they did was mine a block, and they ought to keep the block reward and the tx fees attached to the tx's in that mined block. Paxos overpaid and there is nothing wrong if the mining pool keeps the reward and distributes it to their miners, if they had done that they'll still be mining blocks and nothing changes for them in the network, Paxos and Paypal may go on a campaign against them, but there is no way for them to enforce a refund, and anybody who understands how BTC works wouldn't take them seriously.

Yes, the transaction fee which given to miners can be recovered i was also confused like you, when i first heard of it but then i asked too many questions about it here, read these further replies to know more about it.

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F2pool have done right by refunding the fees to paxos, and also increased their reputation which is important in every business, they know 500K is not something that they harm their trust/reputation for, even a little.

F2Pool did a great job. They can tap themselves on the back. I wonder if they would have done the same "refund" if the sender was an individual, instead of a company. The Paxos employee, who paid this 20 BTC transaction fee is fired, I guess.
I probably would die from a heart attack, if I send thousands of dollars worth of BTC as a transaction fee by mistake.
Maybe that's why I'm always nervous, when I have to send Bitcoins to someone.

1. In principle, transaction fees can't be recovered. What's paid is paid, and since Bitcoin transactions are irreversible, you simply can't take back what you've already sent. What happened here is that F2pool created a separate transaction sending Paxos an amount that was deemed extra.

2. The mining pool or company that sent it back isn't necessarily good. We won't be thanking a god for it. It just so happened that they're an identifiable company that has a public reputation and that the company who committed the error was also a popular company. I doubt F2Pool would be good enough to consider sending you back your transaction fee if you erroneously paid $2,000 for a $10-transaction.

3. Paxos should learn its lessons. At the same time, we should also learn ours. Paxos had just inadvertently shown a huge red flag. We should be more careful in dealing with it. Paxos is a trust company and it shows it might not be worth our trust in handling funds.

Okay the pool or solo miner that mines the block gets the fees.



F2pool has a pool wallet so that wallet grabbed 6.25+19 = 25.25 coins.

They if the fee was not a mistake split the 25.25 coins with the miners. Their fee is say 2% or .5 coins the 24.75 then goes to the miners.

It is a multistep process.  So the pool can hold the block and the fees since it all goes to their address. then to the miners.

there are pools that auto send the coins.

ie same block of 25.25 coins 2 % to the pool operator and rest to the miners all in one step.  In this case the pool does not control the coins it is a one step process.

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

coins would go  to the miners and the pool op in 1 step

https://solo.ckpool.org/

a fee goes to pool op rest goes to solo block winner 1 step


or a single solo miner with no pool 100% got to him.

In the cases above it would have been far sloppier to get a refund back to Paxos/Paypal


I for one would be looking for a lawyer and a legal agreement to protect me from USA taxes since that would have went to a kyc address and shown as income. If I hit with  https://pool.laurentiapool.org/#/work

Transaction fee can be recovered? How? This is the first time I am hearing this. And the first time when I saw the transaction fee really it was something else thay was a huge amount of money. The mining pool or the company that did it was good one. We thank God we have such companies in the blockchain. Such mistake is too expensive. The sender has learned his lesson.

Just for the record and to prove my point, I hope you believe that miners do consider some transactions where huge fees are return. This is the second time in my life in Bitcoin I have experience this, you can navigate to OP first page and comfirm.

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Mistakes are avoidable sometimes but I will really do everything in my power to avoid this because not everyone will reason with you in such kind of difficult situations, that's why concensus rule exit and is been followed by everyone to avoid this kind of things, bull run is also coming, I also hope we don't see more of this.

All is well that ends well, a perfect saying that goes with this situation. I never thought that they'd just return it so quickly as I've also seen some instances taking place before, but only in a few cases did the miners return the fees, whereas in other cases they kept it and used it.

Technically, miners have the right not to give it back because it's the fault of sender and not the miners, miners did their job, simple. I'm shocked to see these big names involved in the transaction and how could they commit such a silly mistake.  

I’m always amazed when these giant accidental transaction fees get returned by the miners that receive them. I’m not sure if I would be able to return half a million dollars from a block I fairly mined, but I’d like to think I would. Kudos regardless to all of the mining pools that do return these fees. It shows that they aren’t all about money.

You know that people would be always have that something to say when it comes to those probabilities on which it is really that simply showing some trust issues or something that we would really be

loving to go into those things which blaming which is casual or as i said pointing out those possibilities which even if it isnt true. We would really be having those doubts or really trust issues i had said earlier. Its true that how about into those people who had made out some mistake on making use of those big amount of fees on their transactions? Usually big numbers and known companies or personalities would really be making out such noise and this is why to those miners who do able to receive such fee will normally be making out such move on giving it back
because it would really be affecting their reputation of course and this is something that they do avoid.

For those normal joes then for sure it wouldnt really be given back but well we cant really make out conclusions since we dont know if ever it did happen
about in between miners and to those who had mistakenly sent out those huge fees on their transactions.

That's why I said assuming, however written or not, in crypto when you mine a block, whatever fee+block reward you receive is yours, I like it because it's more natural, like jungle. But in my country, a bunch of donkeys and cows rule and make up the laws, last thing I know to mine, you need a permit and you'd have to pay for electricity with export price.

Last time I think a similar case happened with antpool if I'm not mistaken?

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This "computer error" had a good side effect, got people talking about 3 big companies, it was like an advertisement for them, I didn't know what paxos is, now I do.

I doubt if a company can make such a mistake, it is really not adding up. No one can send $10,000 transaction without double checking and sometimes checking it several times. Saying it was a software for automatic transaction does not make sense as well because it was not a bulk sending. The only thing that is making sense is that it was delibrate, the purpose of which I do not know.

Rather than create fud, I think this even sound as positive news for Bitcoin and the entire Bitcoin community. It demonstrates the love and transparency that is possible even among Bitcoiners.  The people involved might  just want to be in the news; such news is good for all of us.

Well, it's not the first time that something like that happens. I remember similar cases from the past, but not that many. I don't know who the senders were, and it's not important. My point is, the mining pools returned the coins in those cases as well.

Which laws and from which countries refer specifically to Bitcoin mining rewards? Do they even understand it to write effective laws for mining?

I have to agree with this attitude in a lot of countries it seems like the governments enforce that way.

Ties in with soldered batteries in a cell phone so that is is always a spy device in the name of anti-terroism.

Actually stock and paper gold market investments are tax free here to save the government from bankruptcy, and other financial transactions require evidence and justifiable reason for the banks to process the transaction, it's related to FATF rules, the gov refused to join international FATF, but they are enforcing it's rules domestically.

If you are buying a car, you need to provide the bank with official documents of the deal to let you transfer the money to the seller, they charge the tax for such deals before registering the car to your name. And if you owe a friend, you can't send more than $4,000 per day without officially approved docs. It's a circus in general, the laws of taxation.

In the case of paxos, I believe that pool has to answer to it's government wherever they are located, and all the documents of all financial transactions globally goes to FATF headquarters for assessment. The new universal rule of finance; everyone is a criminal doing money laundry unless legally proven otherwise with evidence. 

It's wonderful that such a big amount of money was returned. I can't imagine what those who made such a costly mistake were feeling, and I remember people voicing concerns in the thread that they don't think it's likely that the funds will be returned. Reading the discussion, I don't buy that this transaction was intentional. I think it was an honest mistake, and we shouldn't blame the person responsible for it, as sometimes terrible mistakes just happen, and it's hard to understand how they happen beyond the fact that making mistakes is a part of human nature.

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.


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 .

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.

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

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.

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?

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.

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

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

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.

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.

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.

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?

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.

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.


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.

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.

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.

@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.

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.

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

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.

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.

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.

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