A recent study from Stanford University proposes the adoption of opt-in “reversible transactions” for use in cases of cryptocurrency hacks and theft – an idea that has sparked heated debate in the online crypto community. 

In a Sunday tweet, Stanford University blockchain researcher Kaili Wang shared a summary of the reversible token idea and linked back to her and her colleague’s study. She said the idea is not a finished concept but a “proposal to provoke discussion and even better solutions from the blockchain community.”  

Indeed, the Tweet did provoke discussions, garnering over 1,000 retweets and a winding thread of over 700 replies, as of press time.

Notable commentators included Emin Gün Sirer, the founder of Ava Labs and cofounder and chief executive officer at Avalanche; as well as Brent Xu, the cross-chain Defi hub Umee founder, showing interest in the idea. 

Cryptocurrency is an attractive target for cybercriminals because of its fast and immutable transactions, with funds able to be moved anonymously within seconds. Cryptocurrency thieves had netted about US$1.6 billion halfway through 2022, according to Chainalysis, a blockchain data company that tracks such hacks. Reversible tokens aim to freeze cyber criminals in their tracks. 

What does ‘reversible’ mean? 

With the proposed reversible Ethereum, a victim of the hack or theft would have a time window where they could request a ‘freeze’ on their funds from a “decentralized quorum of judges.” At that point, they could appeal to have the transaction reversed, and their funds returned.

The paper recommends a three-day dispute period during which the decision to freeze the funds and reverse the transaction would be made. After the dispute period, the transaction could no longer be halted.

The Stanford research paper proposes reversible versions of ERC-20 and ERC-721, the most used standards for creating and issuing smart contracts on the Ethereum blockchain.

Wang used several Tweets to clarify to concerned commenters that the initiative isn’t meant to replace ERC-20 tokens or make all Ethereum reversible, but to simply allow the opt-in time period where transactions could be contested and possibly reversed. 

However, the paper acknowledges several challenges. For one, reversible tokens could be swapped with one another seamlessly; however, swapping them for non-reversible tokens could only be finalized after the time window for transaction reversing is over. Additionally, selecting a fair and impartial set of judges capable of ruling over disputes presents challenges and is seen by many as a type of “centralization.” 

Other companies, such as Lossless, a decentralized finance (Defi) security outfit, have worked on similar projects relating to transaction reversal technology. In 2018, Vitalik Buterin, one of the cofounders of Ethereum, tweeted an idea for an issue of “Reversible Ether” that is 1:1 backed by Ethereum and has a DAO that can revert transfers within a given period of time.

If adopted widely, the paper concludes that the standards could protect the blockchain community from large financial losses. However, the heat the idea generated on Twitter shows hesitation to incorporate too many safety protocols or oversight on the blockchain, even in the face of theft that can run into billions of dollars a year.