Researchers wanted to create a cryptocurrency with a transaction cancellation feature and received criticism
The loss of Etherium tokens, or any other cryptocurrency for whatever reason, be it theft or a lost sido phrase, is irrecoverable. Very rarely do cybersecurity experts manage to recover a private key, while attackers will understandably not return stolen crypto. However, this may be changing thanks to the work of Stanford Institute researchers Kylie Wang, Qingchen Wang and Dan Boneh. The day before, they proposed new token standards based on Etherium called ERC20R and ERC721R. These are extended versions of the ERC-20 and ERC-721 standards with the ability to return transactions. We tell you more about the situation.
As a reminder, a token standard is an interface or set of rules that a smart contract must follow. ERC-20 is the most common interchangeable token based on Etherium, and ERC-721 is a unique or non-interchangeable token, i.e. NFT.
We have been reading in detail the features and differences of ERC20 tokens. Information about them is available in a separate article.
How to get cryptocurrency back?
According to Kylie Wang, the ability to reverse transactions is important in the fight against hackers and fraudsters. Here’s her rejoinder, in which the expert shares her perspective on what’s happening.
The biggest hacking attacks result in the theft of funds. If there was a way to “undo” the theft under such circumstances, our ecosystem would be much safer. Our proposal only allows transactions to be returned if the process is approved by a decentralised quorum of judges.
In other words, the use of the clawback option requires the involvement of third parties, which means that it would probably not be possible to use this on a day-to-day basis. That's better, though, because with other people involved, fraudsters won't be able to claim the coins were sent and then cancel them.
Blockchain refund mechanism
ERC20R and ERC721R combine the smart contracts of the token itself and its management. According to Decrypt’s sources, the controlling smart contract is controlled by a “decentralised court system” in which a quorum of judges vote to freeze and cancel malicious transactions. For example, a victim whose funds have been stolen can submit a request for a freeze to the managing smart contract by providing relevant evidence.
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When filing such a request, the victim must pay a “litigation” fee so that the judges have an economic incentive to pursue their own activities. Presumably, for an additional fee, it would also be possible to increase the priority of cases similar to the increased fees for a place in the transaction confirmation queue in various cryptocurrencies with a mempool, i.e. a queue of unconfirmed transactions. If a majority of the quorum votes in favour of the victim, the funds could be frozen, triggering a lawsuit.
During this, both parties – the victim and the hacker – can present their evidence to the decentralised judges, who will vote again on the outcome. Following the vote, the funds are either returned to the victim or the request is rejected. In theory, this idea could help with recovering funds after hacking attacks, but it has faced criticism from many crypto-enthusiasts.
The problem here is that transaction reversals go against basic blockchain principles. You cannot reverse transactions because the information in the blockchain cannot, in principle, be changed. What’s more, reversion can be arranged in other ways, Argent noted on Twitter. Here’s the quote.
It’s an interesting idea, but it can be implemented in other ways that allow crypto to remain truly free of restrictions. We could do things like monitoring fraud, distributing multi-signature wallets for everyone, or social recovery.
Buying different cryptocurrencies
Another important point is that the ERC20R and ERC721R smart contracts are difficult to integrate into the existing system of decentralised finance. Here’s what Tornado Cash cryptomixer founder Roman Semenov writes about this.
So how will it work if an attacker steals ERC20R and transfers it to ETH through a decentralized exchange in the same transaction? Or would ERC20R be incompatible with the decentralised finance ecosystem?
That is, the developer makes it clear that such tokens will be exchangeable for regular tokens, which in theory will level out their features. If this feature is not implemented, then returnable tokens will only be suitable for transferring value - which is unlikely to attract the attention of many users. In addition, the inability to interact with the DeFi world is also unlikely to benefit the novelty's reputation.
Cryptocurrency investor with Ledger hardware wallet
We think this idea is quite interesting, but it is unlikely to become widely popular. Firstly, the announced feature goes against the ideals of decentralisation, where everyone is responsible for storing their own assets independently. Second, experienced crypto users know how to protect their coins with hardware wallets, while newcomers are unlikely to be able to understand blockchain-based "litigation".
Finally, thirdly, it will not be possible to extend this standard to all tokens, meaning that the return function, if implemented, will prove to be very narrowly focused. Consequently, hackers won't prevent them from going after other coins, so this innovation won't solve the problem of crypto theft.
What do you think about it? Share your opinion in our millionaires’ cryptochat. There we will discuss other developments from the world of decentralization.
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