Ethereum transactions

Reversible transactions could mitigate crypto theft — Researchers

The proposal puts forward an “opt-in” token standard that would enable victims to report theft to a governance contract, with algorithms helping to identify and freeze ill-gotten gains.

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.

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.”

<div>Vitalik: Layer-2 scaling will make crypto payments 'make sense' again — KBW 2022</div>

Bitcoin Payments

“It's a vision that has been, I think, forgotten a little bit and I think one of the reasons why it has been forgotten is basically because it got priced out of the market,” Vitalik Buterin said.

Ethereum co-founder Vitalik Buterin has argued that crypto payments will once again “make sense” as transaction costs will soon fall to fractions of a cent due to layer-2 rollups.

The Cointelegraph team currently on the ground at Korea Blockchain Week (KBW) quoted Buterin as stating that the final hurdle to getting transactions down to fractions of a cent at scale is blockchain data compression.

He pointed to “solid work happening” with roll-ups at the moment such as Optimism’s layer-2 scaling solution for Ethereum, which has worked to get the size and cost of data in blockchain transactions down by introducing zero byte compression.

“So today with roll ups, transaction fees are generally somewhere between $0.25, sometimes $0.10, and in the future with roll ups with all of the improvements to efficiency that I talked about. The transaction costs could go down to $0.05, or even maybe as low as $0.02. So much cheaper, much more affordable, and a complete game changer.”

Despite primarily functioning as a speculative store of value, Buterin emphasized the key use case of Bitcoin (BTC) presented in its white paper from 2008 was to provide a “peer-to-peer electronic cash system” that was cheaper than traditional payment methods.

However, while that was true up until 2013 according to Buterin, this became no longer the case in 2018 when adoption increased and blockchain transactions became too expensive.

“It's a vision that has been, I think, forgotten a little bit and I think one of the reasons why it has been forgotten is basically because it got priced out of the market,” he said.

In the Ethereum co-founder’s view, BTC and other assets will soon be able to provide this use case once again as scaling solutions — such as the lightning network in the case of BTC — gradually bring the costs down to fractions of a cent.

Crypto payment use cases

Buterin outlined a couple of different areas that cheap crypto transaction will be particularly important. Firstly he pointed to “lower income countries or places where the existing financial system is not very effective,” as it will give citizens access to vital payments structure over the internet, something which is already adopted despite the cost for international remittances.

Secondly, he noted that in the context of Ethereum, cheap crypto transactions will also help ramp up adoption for non-financial applications such as domain name system (DNS) servers, humanity proof of attendance protocols and Web3 account management services.

“You need to actually send a transaction to create a DNS name, you need to actually send the transaction to recover your account, you need to actually send a transaction to meet some of these adaptations. If doing each of those operations costs like $11, then people are not going into it.”

“Scalability isn't just like some boring thing where you just need like cost numbers go down scalability, I think actually enables and unlocks entirely new classes of applications,” he added.

Reversible transactions could mitigate crypto theft — Researchers

Vitalik: Layer-2 scaling will make crypto payments ‘make sense’ again — KBW 2022

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