Cryptocurrencies worth over $1.9 billion were stolen in various hacks in the first seven months of 2022. The amount of money lost due to cryptocurrency hacks increased by 60% between 2021 and 2022. With skyrocketing cases of cryptocurrency hacks, enhancing the security of the crypto industry is a priority for investors, institutions, and exchanges. As the attempt to bolster security in crypto intensifies, several innovative initiatives come to the fore. Reversible Transactions are the latest addition to these initiatives. The term is getting substantial media attention because the proposers claim it could minimize the impact of rising crypto thefts.
What Are Reversible Transactions?
The discussion around the concept picked up pace after a team of researchers from Stanford University came up with a prototype for reversible transactions on Ethereum. Researchers argue that it could be a potential solution for minimizing the impact of rising crypto hacks. Innovators and blockchain experts have come up with several initiatives to counter the rising cases of hacks. As DeFi embarks on the journey of global adoption, increasing attacks on the ecosystem affect investors’ trust. The researchers at Stanford University have argued that ‘reversible transaction’ is not a finished concept yet. Blockchain researcher Kaili Wang, an integral part of the Stanford University team, explains that the idea revolves around an Ethereum-based reversible token.
The Idea Of Ethereum-Based Reversible Token
The Stanford University researchers team comprising Kaili Wang, Qinchen Wang, and Dan Boneh, propose new Ethereum token standards, namely ERC-20R and ERC-721R. The token standards have been designed as prototype opt-in token standards that support reversing transactions when the need arises. So how will these standards minimize the impact of crypto hacks?
Consider a scenario where some hacker group bypasses security to access the accounts of users on a crypto exchange to siphon off money. But the DAO has action buttons like ‘reverse’ or ‘undo’. Using these buttons, the DAO can effectively reverse the transactions to send the assets back to the source. Since the concept is still in a discussion phase, there is little clarity around the time frame or window for reversing transactions in case of theft.
The Stanford University team has also released a detailed paper to explain the potential solution. The report cites infamous hacks like the recent BAYC phishing attacks, Poly network attack, Ronin theft, and Harmony Bridge compromise to strengthen the call for a blockchain ‘back button’ or ‘undo button’.
Vitalik Called For Reversible Transactions Long Ago
Looking at a Twitter thread by Kaili Wang, it seems like the researchers simply acted on the advice of Ethereum co-founder Vitalik Buterin. Buterin called for an ERC-20 known as “Reversible Ether,” which is backed 1:1 by ether, but has a DAO that can “revert transfers within N days.” Wang quoted the 2018 tweet by Buterin, where he calls for reversible transactions.
The Other Side
The proposal is receiving mixed responses. A popular argument is that ‘reverse transactions’ contradict the idea that blockchain stands for. Responding to the argument, Wang says that the proposed standards are not meant to replace the ERC-20 or make Ethereum transactions reversible by default. Reversible transactions “simply allow short time windows post-transaction for thefts to be contested and possibly restored,” she said. “Improvements, disagreements, alternatives – we hope to see them all,” Wang added.
The Stanford University team is set to present the proposal at the University of California, Berkeley, on November 31 at CESC.