What Is Fee Bumping?
Fee Bumping is a method of increasing the miner feeWhat Is A Transaction Fee? A Bitcoin Transaction Fee, commonly known as a miner fee, is the amount of bitcoin that a sender attaches to their transaction to incentivize Bitcoin... of a transaction after it has been sent but has not yet been confirmed and added to the blockchainWhat Is The Blockchain? The blockchain is the public record of bitcoin transactions, which are organized into blocks that are all chronologically linked to one another. Because every block is....
Different Fee Bumping Methods
There are currently 2 different fee bumping methods; Replace By Fee (RBF) and Child Pays For Parent (CPFP). Each method is used in different circumstances. Replace By Fee is only able to be initiated by a sending address of an unconfirmed transaction and Child Pays For Parent is only ever able to be initiated by a receiving address of any unconfirmed transaction. Since it’s possible that one of the receiving addresses is a change address (which belongs to the sender), the sender may also be able to bump the fee using CPFP but it would likely be cheaper for the sender to bump the fee with RBF instead.
Replace By Fee
Replace By Fee (RBF) is a fee bumping method that rebroadcasts a transaction from any of the sending addresses but with an increased fee rate.
Technically, you can broadcast the same transaction as many times as you’d like but only 1 will end up being valid as soon as a miner includes it in a block.
Replace By Fee has been scrutinized since it enables the sender to create a second transaction where the sender could change the receiving address(es) to completely different addresses in an attempt to defraud the recipient. This is why it is important to always wait for at least 1 confirmation before you consider a payment as received.
When To Use Replace By Fee
Replace By Fee can only be initiated by a sending address within a transaction so there are a few different instances when it can be used. It’s often used when an unintentionally small miner fee has been used and the sender needs to increase the miner fee. It can also be used when an intentionally small miner fee has been used and the sender wants to slowly increase the fee. It can also be used as a means of avoiding errors when sending large amounts of bitcoin.
Unintentional Low Fee
Sometimes when you are sending to another address and you send with an insufficient fee for a miner to add your transaction to the blockchain, you can use RBF to increase the miner fee to be confirmed sooner.
This may happen when someone accidentally sends to an exchange or custodial service without an adequate fee and the sender needs it confirmed so they can begin to trade. Resending a new transaction with a higher miner fee will incentivize the miners to include the transaction in a block sooner.
It’s also possible to intentionally send with a below-average fee and then increase it later.
Intentional Low Fee.
If you ever send Bitcoin from one of your own addresses to another address, you may want to spend as little as possible on miner fees. In that event, it makes sense to send with the smallest miner fee possible and wait and see if the MemPoolWhat Is The MemPool? The MemPool, short for memory pool, is a short-term database of unconfirmed transactions that is kept by each node. Although the term "MemPool" is frequently used,... will clear and/or a miner will add it to the blockchain. If you decide that you need it to confirm sooner, you can resend the transaction with a higher miner fee and see if a miner will add it to a block with the new higher fee.
You can repeat this process of increasing the fee as many times as you’d like until a miner decides that it is worth it to add your transaction to the blockchain.
Sending Large Amounts
Using RBF can also be useful as a means of protecting a sender from accidentally sending a large amount of bitcoin to an incorrect address. In the event that you ever need to send a large amount of Bitcoin, you may want to send the transaction with an abnormally low miner fee (like 1 satWhat Is A Satoshi? A Satoshi (sat or sats for short) is the smallest unit of a bitcoin. 1 Satoshi is a hundred millionth of a BTC (1 sat =.../vbyte) to see if it will show as pending at the receiving address. Once you have verified that the address that you are sending to is correct and the transaction shows as pending, you can use RBF to bump your fee so that a miner will add it to the blockchain.
Child Pays For Parent
Child Pays For Parent (CPFP) is a fee bumping method that creates a second “child” transaction with the outputsWhat Are Inputs & Outputs? Every bitcoin transaction is made up of inputs & outputs. Inputs are bitcoin being sent and outputs are bitcoin being received. Until bitcoin is sent... of the first “parent” transaction. This child transaction has a larger miner fee than the parent transaction to incentivize the miners to add it to the blockchain. Since the child transaction is created from the parent, the only way that the child transaction is valid is if the parent is confirmed first.
In this sense, the miner fee of the child transaction pays for both the child transaction and the parent transaction. This is where the name “child pays for parent” comes from.
Since CPFP technically creates a total of 2 transactions, the effective fee rateWhat Is The Fee Rate? The fee rate for a Bitcoin transaction is the number of sats a sender is willing to pay for each byte of on-chain transaction data.... will be the average of both the parent and child transaction and not just the child transaction. This effectively makes CPFP twice as expensive as RBF.
When To Use Child Pays For Parent
A CPFP transaction can be initiated by anyone who controls any of the receiving addresses. If there is only a single receiving address, then CPFP can only be initiated by the recipient. If there are multiple receiving addresses, then any one of them can bump the fee with CPFP. This can even be the sender if one of the receiving addresses is the sender’s change address.
Recipient Wants Faster Confirmation
If someone ever sends you some Bitcoin and they attached a miner fee that is below the norm and now it’s stuck pending in the MemPool, you can use CPFP to bump the fee in hopes of receiving your bitcoin sooner.
Fee Bumping Is Helping Bitcoin To Scale
Fee bumping is not just a convenient way of getting transactions confirmed faster. It’s actually one of the ways that Bitcoin is scaling. As more wallets add support for both replace by fee and child pays for parent fee bumping methods, miner fees are likely to become more efficient per byte. Transactions can be sent with a low default fee and then if any senders or recipients want the transaction confirmed sooner, they can use the necessary fee bumping method to increase the fee while it’s pending in the MemPool.