How does subtractfeefrom work?

Question

From the description of Bitcoin Core, subtractfeefrom is a parameter to define which recipient address would opt-in to receive less and contribute to pay the fee

Here is a usecase:

Alex has one UTXO which contains 10 BTC and he sends Mary and Bob each 1 BTC. The transaction fee is 0.5 BTC, so the change to Alex is 10 - 2 - 0.5 = 7.5 BTC.

How does subtractfeefrom apply to above case in DETAIL?

My high level assumption is

• Get the required fee for the txn
• Deduct this amount evenly from every optin output destination, except the change output, e.g 0.5 BTC / 2 destinations
• First optin output destination also deduct by the non divisible amount - e.g 0.5BTC % 2 destinations
• check if the deducted output is dust, else continue
• adding the total deducted amount to change address

Additionally, what if there is no change output, do we need to create one in this case?

Answer 1

As you write, the sendmany has the optional parameter subtractfeefrom. It takes an array of addresses which must be a subset of the addresses appearing in the amounts object. Instead of the default behavior of the sender paying for the transaction fees, when any addresses are provided in subtractfeefrom, the transaction fees are deducted in equal shares from the listed recipients.

Under the hood, Bitcoin Core performs coin selection as if the transaction did not cost fees using the actual values of UTXOs instead of their effective values. After assigning the leftover amount to a change output, the fees for the entire transaction are calculated and deducted from the recipients listed in subtractfeefrom in equal shares. If the amount does not divide cleanly, any remainder is deducted from the first listed address, i.e. if the transaction fee amounted to 800 sats and there were three recipients to deduct the fees from, the first would pay 268 sats and the latter two would pay 266 sats.

As the combination of SFFO and attempting to find changeless transactions has caused several bugs in the last year, Bitcoin Core will always create a transaction with change when any variant of subtractfeefromoutput (SFFO) is used. Incidentally, if you want to empty a wallet completely, perhaps consider using the sendall RPC instead.

Overall, SFFO is a huge pain in the neck as it turns a number of the general assumptions about coin selection and transaction building on its head. If you are looking to implement something like it, I would suggest that you do not attempt to copy Bitcoin Core’s approach.