Reversible transactions could mitigate crypto theft — Researchers

Researchers at Stanford University have created a prototype for “reversible transactions on Ethereum“, arguing that it could help reduce the impact of cryptocurrency theft.

Kaili Wang, a Stanford University researcher in blockchain, shared a summary of the Ethereum-based, reversible token concept via a Sept. 25 Twitter. She noted that it was not yet a complete concept, but rather a proposal to stimulate discussion and better solutions from the Blockchain community.

“The biggest hacks that we have seen are undeniably thefts supported by strong evidence. Our ecosystem would be safer if we could reverse these thefts in such circumstances. Reversals can only be allowed if approved by a decentralized group of judges.

It was created by Stanford blockchain researchers Wang, Dan Boneh and Qinchen Wang. It outlines “opt-in token standards that are siblings ERC-20, ERC-721”, dubbed ERC-20R or ERC-721R.

Theft of crypto amounts to billions. Can we stop thefts? Over the past months, I and a few other @Stanford researchers developed and prototyped ERC-20R/721R in order to support reversible transactions using #Ethereum. See post & :
— kaili.eth (@kaili_jenner) September 24, 2022

Wang clarified however that the prototype was not meant to replace ERC-20 tokens nor make Ethereum reversible. He explained that it is an opt in standard that “simply permits a short window post-transaction for thefts that can be contested, and possibly restored.”

The proposed token standards allow anyone who has had their funds stolen to submit a request for a freeze on assets to a governance agreement. The request will be then followed up by a court decentralized of judges, who must vote “within one or two days at most” to approve/reject the request.

Each side of the transaction could also provide evidence to the judge so they have sufficient information to make a fair decision.

The process for NFTs would be fairly straightforward. Judges will simply need to determine “who currently owns NFT” and then freeze that account.

The proposal acknowledges however that freezing fungible tokens can be more difficult as the thief may split the funds between dozens of accounts and run them through anonymity mixers or exchange them for other digital assets.

Researchers have devised an algorithm to counter this. It provides a default freezing process that allows for the tracing and locking of stolen funds.

It ensures sufficient funds are frozen in the thief’s account to cover the stolen amount. The funds will not be frozen if there is a “direct flow of transactions from theft”.

Gonna mass-address Other comments: – You are absolutely correct if you believe this is an incomplete solution. While our paper presents some pieces to the puzzle (focuses on the mechanics), we also mention many unanswered questions about decentralized government. This space requires more work.
— kaili.eth (@kaili_jenner) September 25, 2022

Wang’s tweet generated much discussion. Many people asked further questions, supported the idea, refuted it, or put forward their own ideas.

Similar: UK Gov’t Introduces Bill to Give Authorities the Power to “Seize, Freeze and Recover” Crypto

Anthony Sassano, a prominent Ether (ETH), bull and podcaster, didn’t like the idea. He tweeted to his 224.300 followers that “I don’t support TradFi 2.0. I’m all about people coming up with ideas and putting them out there into the ether.” Thank you, but no thanks

I’m all for people coming up with new ideas and putting them out into the ether but I’m not here for TradFi 2.0 Thanks but no thanks
— sassal.eth (@sassal0x) September 25, 2022

After further discussion with the commenters, Sassano stated that he believes that the “higher layers”, such as exchanges and companies, should have reversal control, and consumer protections. He also added that the base layer (blockchain and tokens) should be left to the companies.

It would be wrong to do it at the ERC20/721 levels. Protections for end-users can be implemented at higher levels, such as the front-ends.

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