Once your bitcoin transaction has been validated on the Ethereum blockchain, you cannot go back and undo it. How so? because Ethereum was created with the intention of becoming immutable.
What is immutability?
A dataset is said to be immutable if you can’t change the data in it. It prohibits a central authority, such as a government or business, from altering, changing, or censoring the data in the context of blockchain. It’s a strategy to guarantee decentralized operations.
Additionally, it makes data integrity possible, which is necessary for creating effective data storage platforms. Since data cannot be changed, it can only be added to already existing data, the procedure is quicker than with changeable databases. Furthermore, as data is permanently kept on the blockchain, transaction histories are transparent, verifiable, and auditable.
The disadvantage is that transactions cannot be reversed, such as when you accidentally send cryptocurrency to the wrong wallet address due to a typo or when you fall victim to a fraud. In other words, you will always be out of money.
Is it possible to reverse transactions?
There is currently no general approach. However, there have been ideas that use a variety of techniques.
Making initial coin offers (ICOs) reversible is one way, as demonstrated by Fabian Vogelsteller’s rICO. rICO allows coin investors to reserve coins for a certain length of time. If customers change their minds within this time, they can return the reserved tokens to the smart contract. The reversible ICO is an effective safeguard against project launch frauds. It does not, however, function for undoing individual transactions.
New token specifications
Another method is to enhance current token standards to provide reversible transactions.
Token standards are a collection of guidelines that serve as a model for developers to utilize when creating new tokens, coins, or NFTs. As a result, tokens created by different projects become interoperable with one another as well as Ethereum wallets like MetaMask.
ERC-20 and ERC-721 are the most extensively used Ethereum token specifications. Developers utilize the former to produce fungible tokens, such as cryptocurrencies, and the latter to construct non-fungible tokens, such as NFTs.
ERC721 Refundable Standard, which was established to enable refundable NFTs, is an example of a token-standard extension for irreversible transactions. Elie Steinbock, Amir Hagafny, and the CryptoFighters team created it. This new regulation, like rICO, requires NFT customers to request refunds within a specific deadline. Given the prevalence of scam projects in the NFT market, ERC721R is also a major achievement.
The Stanford proposal
Recently, Stanford University academics put out a strategy for making Ethereum transactions reversible. In the paper, they investigate how ERC-20 and ERC-721 may both have their immutability increased by adding reversible tokens, or ERC-20R and ERC-721R, respectively.
In this method, transactions may only be reversed for a brief period of time. The stated transaction is “freezable” during the dispute time before become irreversible once more.
Researchers also put some of the suggested method’s prototypes into practice. Five steps make it work:
- Victim makes a request for a freeze and offers proof.
- The request is approved or denied by a decentralized panel of judges.
- Implementing the freeze
- Judges are given evidence from both sides.
- Whether to reverse the transaction or deny the reverse request is decided by the judges.
Does the Ethereum ecosystem benefit from reversible tokens?
Considering decentralization, definitely not. For instance, the Stanford plan drew a lot of flak, mostly due to the inclusion of judges in the decision-making process. The strategy could be incompatible with the blockchain’s promise of permissionless activities because it is challenging to create a decentralized judge system.
Reversible tokens can lessen attacks and thefts, hence the answer is yes for faster widespread adoption. They may prevent rug pulls and be used by teams to make their work more accountable.
