Paxos acknowledges its accountability for erroneous $500K Bitcoin transfer.

The account that incurred an excess fee of $500,000 on September 10 for a Bitcoin transaction was owned by Paxos, as stated in a September 13 announcement from the firm. Paxos asserted that end users have not been impacted and that all user assets remain secure. The company is primarily recognized as the issuer of stablecoins, such as PayPal USD (PYUSD) and Pax Dollar (USDP), and also operates a cryptocurrency brokerage that facilitates Bitcoin (BTC) transactions.

This announcement follows speculation among users on X (formerly Twitter) suggesting that PayPal might have been involved in the transaction due to a related wallet account identified by the analytics platform OXT as belonging to PayPal. A representative from Paxos informed Cointelegraph that PayPal was not at fault, attributing the error to its own operations, stating:

“Paxos overpaid the BTC network fee on Sept. 10, 2023. This only affected Paxos corporate operations. Paxos clients and end users have not been impacted, and all customer funds are secure. This was due to a bug on a single transfer, which has been resolved. Paxos is in communication with the miner to recover the funds.”

The erroneous transaction was initially identified on September 10, shortly after it took place. Blockchain data indicates that the sender incurred fees of around 20 BTC (valued at over $515,000 at that time) to transfer just 0.07 BTC (worth less than $2,000 at that moment). At that time, Casa wallet co-founder Jameson Lopp remarked that the sending account “appears to be an exchange or payment processor with faulty software,” as it had conducted over 60,000 transactions from the same address.

The block containing the transaction was validated by the Bitcoin mining pool F2Pool. On September 10, the pool’s management proposed to return the funds to the sender if a claim was submitted within three days. Otherwise, the excessive fee would be distributed to the pool’s hashing power contributors.

Prior to Paxos’s announcement, Bitcoin enthusiast Mononaut claimed on X that PayPal was accountable for the transaction.

BREAKING
The fat fingers belong to PayPal https://t.co/pKN0w5SfKB

— mononaut (@mononautical) September 13, 2023

Mononaut noted that the sending account, bc1qr35hws365juz5rtlsjtvmulu97957kqvr3zpw3, displayed behavior that “closely resembles the activity of a now inactive wallet [bc1qhs3gptkxem5y7yaq2yg0un2m8hae6wt87gkx4n].” This inactive address was identified as “Paypal” by the blockchain analytics platform OXT.

To support their theory, Mononaut highlighted that this previous wallet address transferred its funds to the new address via an intermediary account. Bitcoin blockchain data reveals that the old address labeled “Paypal” by OXT sent approximately 18.5 BTC to address bc1qlm0xlahpysq2v9yh5rhcc430xjz3xknqqnyvaf on June 19. That account subsequently transferred around 5.37 BTC to the new address that later executed the erroneous transaction. Lopp shared the thread, questioning whether PayPal would seek to reclaim the funds.

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Paxos subsequently released its statement affirming that the error was its own, not that of PayPal.

Paxos is not the first cryptocurrency user or company to potentially incur significant fees due to an error. In 2019, an Ethereum user lost over $300,000 after mistakenly entering values into incorrect fields. Fortunately for them, the mining pool agreed to return 50% of the lost funds. In 2020, another Ethereum user inadvertently paid $9,500 for a $120 trade, claiming that the mistake had “ruined [their] life.”

In its statement, Paxos indicated that it had reached out to the mining company that confirmed the transaction and is working to recover the lost funds.