Bitcoin: Replace-By-Fee

My friends may have noticed a peculiar pattern in my emails, that have been exploring Bitcoin. I have partially been asking questions, and tentatively finding wrong answers to them, until such a time as I have found the correct answers.

The most recent question had to do, with why, after I had sent some Bitcoin-amount from my Bitcoin Core wallet, to my Electrum wallet, that amount appeared as 'Pending' within 10 minutes, but took up to an hour to be Confirmed. It was specifically the speed with which it appeared as Pending, not how slowly the transaction was confirmed, which struck me as a mystery, given that the way the network is supposed to function, only the mining pool which has been given the request to send my transaction, should be in the process of solving the hash, for a block, which it is mining, and given the fact that the rate of 1 block every 10 minutes, is being shared between mining pools.

My next hypothesis was, that all the mining pools could have been working to mine the same transaction-list, which was an alarming idea for some obvious reasons. And that idea was false.

As it happens, this is completely normal behavior. The reason the receiving wallet sees the transaction as Pending so fast, is the fact that on the receiving end, the wallet connects to numerous nodes, and any one of those nodes could be the same node, belonging to the mining pool that I asked the amount to be sent from. So the appearance of the transaction as Pending, does not mean that the transaction has been inserted into the block-chain yet, its status as Confirmed does.

To top it off, I had 'RBF' enabled on the sending wallet.

'RBF' stands for "Replace By Fee", and is a special feature offered by Bitcoin Core. What it means, is that A could be sending an amount to B, which B sees as an Unconfirmed amount almost immediately. And then B can send funds from that Unconfirmed amount to C, provided that both A and B are clients of Bitcoin Core, and that A offered this ability when sending the amount to B.

- Bitcoin-Core Clients -
A  ->(RBF-enabled)  B  ->(unconfirmed-input)  C

A pays a slightly higher fee for this.

The reason this can exist, is the fact that Bitcoin Core is a large operator, and has confidence in the transaction sent by A. It therefore authorizes B to spend it again, even though (A -> B) is not in the block-chain yet.

Enabling this feature, given that Electrum is a 3rd-party wallet, and that some of the nodes it connects to are also Bitcoin Core nodes, virtually guaranteed that B would see the transaction, even though it was Unconfirmed, almost immediately. And in my case, there was no Party C (yet).

Also, Bitcoin Core could be making this feature an argument, not to increase the block-size, because as long as everybody has a Bitcoin Core -compatible client-program, the visibility of (A -> B) to party B, can act as an assurance that payment has been sent, even though it might currently take over an hour, for that payment to be Confirmed.

And, Party B need only be connected to a Bitcoin Core node for verification purposes, without having to use Bitcoin Core for sending, in order to be able to see the Transaction (A -> B) .

Actually, there is a partial admission, that this could lead to a double-expenditure somewhere. But Bitcoin Core is additionally confident, that this risk is minimal.


Dirk