Paxos Admits Responsibility for $500K Mistaken Bitcoin Transaction

In a recent revelation, Paxos admitted to being the source of a $500,000 fee overpayment made on September 10th for a Bitcoin transfer. The acknowledgment came through a statement released on September 13th by the company. Despite initial speculation on X (formerly known as Twitter) that PayPal might have been involved due to a related wallet account identified by the analytics platform OXT as belonging to PayPal, Paxos firmly clarified their responsibility for the error.

Paxos, renowned as the issuer of stablecoins like PayPal USD (PYUSD) and Pax Dollar (USDP), also operates a cryptocurrency brokerage business with a focus on Bitcoin.

The company’s representative confirmed that the mistake was solely Paxos’s doing, stating, “Paxos overpaid the BTC network fee on Sept. 10, 2023. This only impacted Paxos corporate operations. Paxos clients and end users have not been affected, and all customer funds are safe. This was due to a bug on a single transfer and it has been fixed. Paxos is in contact with the miner to recoup the funds.”

The error came to light shortly after the transaction occurred on September 10th. According to blockchain data, the sender paid fees totaling approximately 20 BTC (equivalent to over $515,000 at the time) to transfer a mere 0.07 BTC (valued at less than $2,000 at the time). The sender’s account attracted attention because it had executed over 60,000 transactions from the same address, prompting Casa wallet co-founder Jameson Lopp to speculate that it resembled an exchange or payment processor with buggy software.

Bitcoin mining pool F2Pool confirmed the transaction within their mined block. On September 10th, the pool offered to return the excessive fee to the sender if a claim was made within three days; otherwise, the fee would be distributed among the pool’s hashing power contributors.

Further investigation revealed that the sending account, with the address bc1qr35hws365juz5rtlsjtvmulu97957kqvr3zpw3, displayed behavior closely resembling that of an inactive wallet with the address bc1qhs3gptkxem5y7yaq2yg0un2m8hae6wt87gkx4n, which had been previously labeled “Paypal” by the blockchain analytics platform OXT.

To strengthen this hypothesis, it was noted that the old “Paypal” address had transferred around 18.5 BTC to address bc1qlm0xlahpysq2v9yh5rhcc430xjz3xknqqnyvaf on June 19th. Subsequently, this account transferred approximately 5.37 BTC to the new address responsible for the erroneous transaction. This chain of events prompted speculation about whether PayPal would seek the return of the funds.

Paxos later issued a statement confirming that the error was their own, dispelling any lingering doubts about PayPal’s involvement.

Mistaken high-value fee payments are not unheard of in the cryptocurrency space. In 2019, an Ethereum user lost over $300,000 due to mistakenly inputting values into the wrong fields, with the mining pool eventually agreeing to return half of the lost funds. Similarly, in 2020, another Ethereum user accidentally paid $9,500 for a $120 trade, a costly error that they claimed had a profound impact on their life.

In their statement, Paxos indicated that they had initiated contact with the mining company responsible for confirming the transaction and are actively pursuing the recovery of the misplaced funds.

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