Reversible transactions could mitigate crypto theft — Researchers

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

In a Sept. 25 tweet, Stan­ford Uni­ver­si­ty blockchain researcher Kaili Wang shared a run down 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,” noting: 

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

Bil­lions in cryp­to stolen. If we can’t stop the thefts, can we reduce the harm­ful effects?

Over recent months, a cou­ple oth­er @Stanford researchers and I drew out and pro­to­typed ERC-20R/721R to sup­port reversible trans­ac­tions on #Ethereum.

See post & :https://t.co/38Hs0F9goU

— kaili.eth (@kaili_jenner) Sep­tem­ber 24, 2022

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

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

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

For NFTs, the process would be rel­a­tive­ly straight­for­ward as the judges just 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 can split the funds among dozens of accounts, run them through an anonymi­ty mix­er or exchange them in oth­er dig­i­tal assets. 

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

They note that it 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’s a direct flow of trans­ac­tions from the theft.”

Gonna mass-address oth­er com­ments:
- If you think this is an incom­plete solu­tion, you’re entire­ly cor­rect. Our paper pro­vides some pieces of the puz­zle (focus­es on the mechan­ics), but we men­tion many open ques­tions sur­round­ing decen­tral­ized gov. That space needs work.

— kaili.eth (@kaili_jenner) Sep­tem­ber 25, 2022

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

Relat­ed: UK gov­’t intro­duces bill aimed at empow­er­ing 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 into the ether but I’m not here for Trad­Fi 2.0. Thanks 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 https://t.co/pdSIB5Ib05

— sassal.eth (@sassal0x) Sep­tem­ber 25, 2022

Dis­cussing the idea fur­ther with peo­ple in the com­ments, Sas­sano explained that he thinks that rever­sal con­trol and con­sumer pro­tec­tions should be placed on 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 “base lay­er” which I don’t think is right. End-user pro­tec­tions can be put in place at high­er lev­els such as the front-ends.”