Reversible transactions on Ethereum?
Researchers at Stanford University have presented a concept for reversible transactions on the Ethereum blockchain.
Researchers at Stanford University have unveiled a concept for reversible transactions on the Ethereum blockchain. Is blockchain finality in jeopardy?
One of the strongest points of the blockchain is its immutable nature. Once transactions are done and validated, there’s no going back. For victims of hacks and the like, though, this has often been more of a curse than a blessing. If private keys, wallets, or smart contracts are compromised, attackers could siphon crypto without consequences. Any hope for a happy ending? Not likely.
This year alone, two billion dollars have been stolen through bridge hacks. Unlike banks, funds in the blockchain world can’t be reclaimed. That risk of loss has, until now, been the price of immutability. But that could change. Researchers at Stanford have published a paper with the first concepts of reversible transactions on Ethereum.
The new Ethereum token standard
The new coin standards ERC20-R and ERC 721-R would be the solution. They extend the most-used standards on Ethereum (ERC20 and ERC 721). The token standard effectively provides a smart contract on Ethereum with a set of rules for handling the coin. For example, its functions related to a DeFi application
The new standard basically includes a function to reverse a transaction. According to the researchers, a "decentralized justice system" would decide on the reversal. If a user is a hack victim losing coins, they could submit a request to freeze and return them. The requester must provide the necessary evidence of the wrongdoing, with the alleged attacker able to submit evidence as well. A decentralized court proceeding. If the crypto jury is convinced, the coins go back to their rightful owner.
The concept envisions a future where hacks worth millions become a thing of the past. Because besides the danger of getting caught, hackers would have to reckon with losing the stolen money if a transaction can be reversed.
Despite the obvious benefits for limiting damage from hacks and the like, the proposal has drawn substantial criticism.
Ethereum and Co.: What about finality?
Because the concept leaves many questions unanswered. One of the researchers notes in her blog that it’s unclear who the judges would be in this decentralized system. Their incentives and the actual election process are also unclear. This opens up new attack surfaces. If so-called "decentralized judges" banded together, they could reverse transactions at will. Government intervention isn’t off the table either.
The DeFi scene, in particular, is skeptical of reversible transactions. Tornado Cash founder Roman Semenov points to the limits of the idea. It’s also questionable whether the many DeFi protocols will even accept the new standard. With no single transaction deemed final, both users and DeFi platforms are likely to balk at reversible transactions.
The idea of reversibility may be noble, but the gaps are clear. In their paper, the researchers agree: "Reversibility is viral." In other words, once one or two key players in crypto adopt the standard, others will follow.
Finally, there are ideological objections. Ethereum developer and DeFi project founder "Foobar" defends the blockchain’s finality in his blog. He sees it as a near-physical constant, with fixed rules and a stable environment. In his view, DeFi and NFTs would effectively be useless with reversible transactions.
According to the developer, the mutability of the blockchain erodes trust and slows things down. "Money should move at internet speed, not mail-delivery speed," he explains.
The goal of blockchain has always been to give users back responsibility for their digital assets. And responsibility means risk. It remains to be seen whether the sector will want to safeguard that responsibility again.
