Reversible transactions could reduce crypto theft — Researchers

by · September 25, 2022

Stanford University researchers have come up with a prototype for “reversible transactions” on Ethereum, and claim it could be a solution to reduce the impact of crypto theft.

In a 25 Sept chirpingStanford University blockchain researcher Kaili Wang shared an overview of the Ethereum-based reversible token idea, noting that at this stage it is not a finished concept, but more of a “proposal to provoke discussion and even better solutions from the blockchain community.” notes:

“The big hacks we’ve seen are undeniably 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 reversal only if approved by a decentralized quorum of judges.”

The proposal was put together by Stanford blockchain researchers, including Wang, Dan Boneh, Qinchen Wang, and it outlines “opt-in token standards that are siblings of ERC-20 and ERC-721” called ERC-20R and ERC-721R.

However, Wang clarified that the prototype would not replace ERC-20 tokens or make Ethereum reversible, explaining that it is an opt-in standard that “simply allows a short window of time after the transaction for thefts to be contested and possibly recovered.”

According to the proposed token standards, if someone gets their money stolen, they can submit a freeze request on the assets of a governance contract. This will then be followed up by a decentralized court of judges who must quickly vote “within a day or two at most” to approve or reject the request.

Both sides of the transaction will also be able to provide evidence to the judges so that they have enough information, in theory, to reach a fair decision.

For NFTs, the process will be relatively simple as the judges will only need to see “who currently owns the NFT, and freeze that account.”

However, the proposal admits that freezing fungible tokens is much more complicated, as the thief could split the funds between dozens of accounts, run them through an anonymity blender or exchange them for other digital assets.

To counter this, the researchers have come up with an algorithm that provides a “standard freezing process for tracking and locking stolen funds.”

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

Wang’s Twitter post generated a lot of discussion, with a mixed bag of people asking more questions, supporting the idea, refuting it or putting forward their own ideas.

Related: UK Government Introduces Bill Aimed to Empower Authorities to ‘Seize, Freeze and Recover’ Crypto

Prominent Ether (ETH) bull and podcaster Anthony Sassano wasn’t a fan of the proposal, tweeting to his 224,300 followers that “I’m all for people coming up with new ideas and putting them out on the air, but I’m not here for TraFi 2.0. Thanks, but no thanks”

Discussing the idea further with people in the comments, Sassano explained that he believes reversal control and consumer protection should be placed at the “higher layers” such as exchanges and companies rather than the base layer (blockchain or tokens), adding:

“Doing it at the ERC20/721 level would basically be doing it at the ‘foundations’, which I don’t think is right. End-user protections can be put in place at higher levels like frontends.”