Reversible transactions сan reduce the number of cryptocurrency thefts


Researchers from Stanford University have developed a prototype of "reversible transactions" in Ethereum, claiming that this could be a solution to reduce the consequences of cryptocurrency theft.

The proposal puts forward an "opt-in" token standard that will allow victims to report theft in a management contract, with algorithms that help identify and freeze income obtained dishonestly.

In a tweet dated September 25, Stanford University blockchain researcher Kylie Wang shared a brief information about the idea of an Ethereum-based reversible token, noting that at this stage it is not a complete concept, but rather "a proposal designed to provoke discussions or even better solutions from the blockchain community."

"The major break-ins that we have seen are undoubtedly thefts with strong evidence. If there was a way to reverse these thefts in such circumstances, our ecosystem would be much safer. Our proposal allows cancellation only if approved by a decentralized quorum of judges," Wang said.

The proposal was compiled by Stanford blockchain researchers, including Kylie Wang, Dan Bone, Qinchen Wang, and it outlines "standards for consent tokens that are related to ERC-20 and ERC-721," dubbed ERC-20R and ERC-721R.

"Billions in cryptocurrencies have been stolen. If we can't stop the thefts, can we reduce the harmful effects? In recent months, a couple of other Stanford researchers and I have developed and created a prototype of the ERC-20R/721R to support reversible transactions in Ethereum," the announcement of the study says.

However, Wang explained that the prototype should not replace ERC-20 tokens or make all transactions in Ethereum reversible, explaining that this is a consent standard that "simply allows to challenge and possibly recover theft within a short period of time after the transaction."

In accordance with the proposed token standards, if funds are stolen from someone, they can submit an asset freeze request to a management contract. This will then be followed by a decentralized jury, which needs to vote quickly "within a maximum of two days" to approve or reject the request.

Both sides of the deal will also be able to provide evidence to the judges so that theoretically they have enough information to make a fair decision.

For the NFT, the process will be relatively simple, as the judges just need to see "who currently owns the NFT and freeze that account."

However, the proposal recognizes that freezing fungible tokens is much more difficult, since a thief can divide funds between dozens of accounts, run them through an anonymity mixer or exchange them for other digital assets.

To counter this, the researchers have developed an algorithm that provides a "default freezing process for tracking and blocking stolen funds."

They note that this ensures that enough funds in the thief's account will be frozen to cover the stolen amount, and the funds will only be frozen if "there is a direct flow of transactions from the theft."

"I want to immediately respond to a lot of possible comments. If you think this is an incomplete solution, you are absolutely right. Our article presents some pieces of the puzzle (focused on mechanics), but we mention a lot of open questions related to decentralized governance. These principles need to be refined," Wang writes.

Wang's Twitter post sparked a heated discussion, and many people asked additional questions, supported the idea, refuted it, or put forward their own ideas.

Renowned Ethereum (ETH) bull and podcaster Anthony Sassano has spoken out against the proposal, tweeting to his 224,300 followers:

"I'm all for people who come up with new ideas and put them on the air, but I'm not here for TradFi 2.0. Thanks, but no," Sassano wrote.

Discussing this idea with people in the comments, Sassano explained that, in his opinion, cancellation control and consumer protection should be placed at "higher levels", such as exchanges and companies, and not at the basic level (blockchain or tokens).

"To do it at the ERC20/721 level, in fact, would be to do it at the "basic level", which I think it's wrong. End-user protection can be implemented at higher levels, such as external interfaces," Sassano explained.

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