Will new token standard bring reversible transactions?

One of the greatest strengths of blockchain is its immutable nature. Once transactions have been made and validated, there is no turning back. For victims of hacks and co., however, this was often a curse instead of a blessing. Once private keys, wallets or smart contracts were compromised, attackers were often able to siphon off cryptos without consequences. prospect of redress? none.

Two billion US dollars have already been stolen this year through bridge hacks alone. Unlike a bank, the funds in the blockchain world cannot be withdrawn.

This risk of loss has so far been the price of immutability. But that could change now. Because researchers at Stanford University have a paper with the first drafts reversible transactions on Ethereum released.

The new Ethereum token standard

According to this, there would then be the new token standards ERC20-R and ERC 721-R. They represent an extension of the previously most frequently used standards on Ethereum (ERC20 and ERC 721).

In principle, the token standard provides a smart contract on Ethereum with the set of rules for handling this token. For example, for its functionalities in connection with a DeFi application.

The new standard then basically includes a function to reverse a transaction. According to researchers, a “decentralized court system” should decide on the reversal.

So if a user is the victim of a hack in which he loses his tokens, he can submit a request for freezing and return here. Then the applicant must present the necessary evidence of the misdeed, whereby the alleged attacker may also submit evidence. A decentralized legal process, so to speak. If the crypto jury is convinced, the tokens will be returned to their rightful owner.

The concept envisions a future in which hacks worth millions would be a thing of the past. Because in addition to the risk of being caught, hackers would now have to reckon with losing stolen funds again through a transaction reversal.

Despite the recognizable advantages for limiting damage caused by hacks and the like, the proposal has met with a lot of criticism.

Ethereum and Co.: What about finality?

Because the concept still leaves many questions unanswered. One of the researchers admits in her blog admits that it has not been clarified who exactly the judges are in this decentralized court system. Their own incentive and the actual electoral system are still unclear.

This offers new attack surfaces. Should the supposedly “decentralized judges” band together, they might be able to reverse transactions at will. State intervention would also not be ruled out in this way.

The DeFi scene in particular is critical of the proposal for reversible transactions. The founder of sanctioned crypto mixer Tornado Cash, Roman Semenov, reveals the limitations of the idea.

It is also questionable whether the numerous DeFi protocols will then even accept the new standard. Knowing that no transaction is definitive, users and the DeFi platforms themselves should shy away from reversible transactions.

The concept of reversibility may be a noble approach. But the gaps in this regard are clear. In their paper, however, the researchers agree: “Reversibility is viral”. Meaning, as soon as one or two key players in the crypto space adopt the standard, the others will follow suit.

Finally, there are ideological caveats. Ethereum developer and DeFi project founder “Foobar” defended in his blog the finality of the blockchain. He sees the state of these as an almost physical given, with set rules and a consistent environment. In his opinion, DeFi and NFTs would be effectively useless with reversible transactions.

According to the developer, blockchain mutability erodes trust in it and slows movement on it. “Money should move at the speed of the internet, not the mail,” he explains.

The purpose of the blockchain was actually always to give users back responsibility for their digital values. And responsibility also means risk. It remains to be seen whether the sector will want to protect itself a little from this responsibility.