What if an immutable and irreversible cryptocurrency transaction wasn’t?
That’s the idea trio of Stanford University researchers proposed this week as a way to combat the seemingly constant string of thefts, fraud and hacks that have routinely seen hundreds of millions of dollars stolen in the crypto industry — including more than $14 billion last year alone.
Specifically, Kalli Jenner, Dan Boneh and Qinchen Wang have suggested a reversible version of ether and non-fungible token (NFT) coins that would give token owners a short window when they could appeal to a decentralized panel of judges who could first freeze and reverse the transaction if they believed it was appropriate.
2/ The major hacks we’ve seen are undeniably thefts with strong evidence. If there was a way to reverse those thefts under such circumstances, our ecosystem would be much safer.
Our proposal allows reversals only if approved by a decentralized quorum of judges. The steps:— kaili.eth (@kaili_jenner) September 24, 2022
The proposal wouldn’t replace standard immutable ether or NFT tokens; it would simply add a reversible standard crypto project that developers could choose to use instead.
“The immutability of blockchain transactions is both a blessing and a curse,” Jenner wrote in a post describing the project. Pointing to thefts like the $612 million Poly Network attack, $100 million Harmony Bridge exploit and $625 million Ronin Network theft, she said, “you may be thinking: Reversible tokens? Doesn’t that just defeat the purpose of blockchain?”
See also: The $100M Hack and Crypto’s Cross-Chain Payments Problem
Arguing that it doesn’t, she pointed out that under the proposal, “a transaction is only freezable for a short amount of time (say, three days) before it becomes irreversible. For most of their lifetime, [these token] funds are irreversible.”
Delaying Finality
It would, however, add a substantial amount of time to the finality of a transaction, currently about one to two minutes on the Ethereum 2.0 blockchain, which is already arguably too long for retail payments contending with the coming of real-time payments and Ethereum competitor blockchains where finality is measured in a few seconds at most.
Read also: What the Ethereum Merge Didn’t Do
But for large-scale transactions and ones that don’t involve non-payment transactions, it does have more than a few potential uses in an industry where the biggest problem may well be the prevalence of fraud, scams and hacks. Another would be making the self-executing smart contracts that make cryptocurrencies like Ethereum into programmable money correctable — flawed contract language has locked millions away forever — and subject to court rulings.
See also: What Is a Smart Contract?
That isn’t too dissimilar to the aim of a Commodity Futures Trading Commission’s Sept. 22 lawsuit that claims anyone participating in a decentralized autonomous organization that runs a decentralized finance (DeFi) project should be liable for things like anti-money laundering (AML) regulation violations and licensing failures.
Read more: Lawsuit Aims to Rein in DeFi
Another substantial problem, from the payments perspective as well as broadly, is the potential for fraud by the person sending the tokens — the buyer in a payments transaction. Think chargeback fraud, which has been pitched as something irreversible crypto payments eliminate.
See more: How Crypto Shields Merchants Against Chargeback Fraud
Controversy Grows
Of course, those of a libertarian bent among the crypto devoted (and there are many) have raised a chorus of complaints that the reversible tokens would allow censorship and government control — not only because of the reversibility, but also because authorities could, in theory, coerce the judges.
The proposal would also add an element of centralization — those judges — to a payments technology whose first goal is eliminating middlemen.
Those judges — who they are, how they’re chosen, kept honest and rewarded for their work — represent the biggest hole in the proposal, as Jenner freely acknowledged, calling the paper not a final work but “a proposal to provoke discussion and even better solutions from the blockchain community.”
At the same time, there are some powerful voices in support of the idea of reversible crypto transactions.
Indeed, Jenner pointed to a tweet by Ethereum creator Vitalik Buterin suggesting the creation of a “Reversible Ether” back in 2018.
Hey guys clarifying a recurring misunderstanding from the comments:
This is not a proposal to replace non-reversible tokens with reversible ones, or to make Ethereum reversible. This is to discuss a new potential token type, as originally proposed 4 years ago. https://t.co/OhaDSp5Hi9— kaili.eth (@kaili_jenner) September 25, 2022
Another supporter of the idea is Emin Gün Sirer, a former Cornell University computer science professor who is founder and CEO of Ava Labs, creator of the Avalanche blockchain, an Ethereum competitor that is currently the 16th largest blockchain, with a market capitalization of $5 billion.
Calling the proposal a “great idea,” Sirer said he “proposed reversible transactions and decentralized escape hatches,” years ago.
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