Stanford University has created a prototype token for “reversible” transactions on the Ethereum network. According to the researchers, this could be a solution to reduce the consequences of the theft of cryptocurrencies. Tokens of the new standard will allow within a short time (up to three days) after the transaction to challenge it and return the funds back.
The experts told RBC-Cryptohow feasible this idea is, and how the crypto community will react to the ability to reverse crypto transactions.
Very distant perspective
Scientists at Stanford University have developed a new standard compatible with existing Ethereum standards that will freeze illegal transactions, says Yuri Brisov, founder of LFCS Legal Support. However, he noted that this standard is still more of a concept or an intellectual experiment, even preliminary tests have not yet passed on the Ethereum blockchain.
The expert explained that the new opt-in token standard (subscription token for something), or rather until its prototype, will not replace ERC-20 tokens and will not make Ethereum reversible. But it will allow in a short period of time after the transaction to challenge the theft and, possibly, restore the token to the rightful owner, Brisov specified.
According to him, from a legal point of view, the idea looks attractive, since it will allow to implement the recovery of unjust enrichment or apply vindication (return requirement) to tokens, as with money or other things. But the lawyer believes that from the point of view of practical implementation, this still seems to be a very distant prospect.
With regard to NFT-related standards, such as ERC721 and ERC1155, a similar idea could probably be implemented, since it is often easy to establish the true owner of non-fungible tokens, the expert believes. But he noted that in relation to ordinary tokens, it is still difficult to imagine how such a mechanism could work, since all disputed transactions will need to be sent to arbitration, and someone will have to consider all these disputes and make a decision.
“For the time being, it seems possible to implement it exclusively with the help of attracting a human resource. In this case, the blockchain will lose a number of its main advantages,” the lawyer is sure.
However, at the idea level, this solution is clearly not without meaning: with the development of technology and deeper integration of artificial intelligence, the possibility of transaction reversibility will have to appear, the expert believes. He pointed out that, in fact, custodial services are exchanges, wallet operators already offer such services today. Today, these services are implemented, as in the classical sector, at the expense of a third party, but in the future technology should take over this function, Brisov believes.
The proposal of Stanford researchers may certainly be of interest to corporations that develop solutions based on public networks, but this initiative will be met with resistance in the community because it contradicts the fundamental property of the blockchain, namely immutability, Aaron Chomsky, head of the investment department at ICB Fund, is sure. According to him, Ethereum faced a similar dilemma in the past after The DAO hack, which led to the split of the chain into Ethereum and Ethereum Classic. It is unlikely that anyone would want to make such a split and return to those times, the expert believes.
In his opinion, if ERC-20R and ERC-721R appear, they can occupy the niche of a solution for corporate clients following the example of ERC-3643. This standard originated from ERC-20 with the addition of a KYC user verification function. As a result, the tokens became allowed (permissioned). In general, the ERC-20R and ERC-721R will have little chance of gaining popularity, as users and developers will prefer their non-R counterparts, Chomsky said.
He explained that the concept of ERC-20R and ERC-721R looks difficult to implement. From the moment of the incident to the consideration of the blocking of assets by a decentralized court, enough time may pass for the attackers to have time to reduce the efforts of the affected parties to zero, the expert believes.
He explained that speed is needed here, and hacking victims lose in this by default. The authors themselves admit that their idea will require further development. Obviously, the focus should not be on the recovery of funds, but on improving the security of protocols, the expert believes. He said that only improving auditing, creating libraries of safe code snippets, popularizing services that monitor projects for red flags, and possibly switching to other programming languages can help in this regard.
“In the past, Vitalik Buterin proposed the concept of social recovery, but not of funds, but of private keys – through an appeal to the so-called “guardians” or through the signature of a special transaction. The implementation of this also controversial initiative will cause much less debate, ”said Chomsky.
The very idea of the possibility of a “rollback” on transactions, it would seem, is positive news for the world of cryptocurrencies, says Ekaterina Popova, COO of ITS WM. According to her, the irreversibility of transactions is an obvious weak point of any blockchain that makes crypto assets a second-rate means of payment in comparison with the same Visa and Mastercard. She noted that if in “traditional” payment systems it is easy to block fraudulent transactions and recover losses, then in the case of cryptocurrency, one wrong click or an incorrectly entered number or letter can lead to an irretrievable loss of funds.
However, the lawyer drew attention to the fact that the psychology of the majority of participants in the blockchain ecosystem must also be taken into account. According to her, these are mostly young men for whom cryptocurrencies are a way to get rich quick and “challenge the system.” The libertarian myth surrounding blockchains is much more important in terms of creating demand than their highly dubious value as a means of making payments, the expert is sure.
To introduce such a system of reversible transactions means to give control to the state and regulators over the potential execution of transactions and, ultimately, to make the crypto ecosystem more understandable and predictable, Popova believes. But it’s the “pirate” nature of current blockchains that attracts many young and ambitious people, she says. Remove this support from cryptocurrencies and a significant part of the current investor base may completely lose interest in such assets, the lawyer believes.
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