Ever since bitcoin network congestion became a recurring problem in the cryptocurrency world, Bitcoin Core developers have been searching for a way to combat this issue. Their solution comes in the form of a feature called replace-by-fee, which allows for low-fee transactions to be rebroadcasted and include a higher fee. An intriguing concept that has been embraced by most bitcoin wallets to date.
Replace-by-fee Solves A Pressing Problem
Do not be mistaken in thinking rebroadcasting a bitcoin transaction with a higher fee is the end-all solution by any means. The better option would be to allow for more transactions per block, yet activating such a solution will take quite some time. Until then, replace-by-fee is a solution that will help a lot of people, even though it eventually results in them paying a higher transaction fee.
That is why this solution makes a lot of sense to developers. It allows users to take an unconfirmed transaction broadcasted from their wallet, and resend it to the same address with a higher fee. This is not the same as child pays for parent, which effectively sends a bitcoin transaction with a higher fee to a different address. The only thing both concepts have in common is how they both allow for higher fees to be paid.
Imagine you are sending funds to a friend, but you pay the lowest bitcoin transaction fee as suggested by your wallet. After an hour, there are still no network confirmations. While it possible this is due to an overwhelming amount of transactions waiting to be confirmed, a more logical explanation is how miners have not picked up the transfer due to its low fees. Instead, the miners prioritize the transactions which are more lucrative for them.
Solving this problem is not straightforward since unconfirmed bitcoin transactions can’t be canceled. Your transaction is stuck, yet your friend needs the money urgently. This is where replace-by-fee comes into the picture. Users take the same amount of bitcoin they want to transfer and send it to the same address, yet with a higher fee. This higher fee will attract miners to confirm the transaction and ensure funds is transferred to your friend,
However, it is important to not the replace-by-fee option does not mean users are sending the bitcoin balance in question twice. Instead, the new transaction with improved fee will overwrite the earlier transfer. The only thing changed is how slightly more money has been spent on fees. While this process may sound cumbersome to use, virtually all major bitcoin wallets have enabled replace-by-fee in the user interface, making it quite a convenient and nifty feature.
There is also a feature known as first-seen-safe replace-by-fee, or FSS RBF, of which a more technical explanation can be found here. Replace-by-fee is an opt-in feature that is not mandatory by any means. It is there for the people who want to see it in specific situations, yet even low-fee transactions will eventually get picked up. It may take hours, or even days, before that happens, though.
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