A research proposal by a team of Stanford University blockchain experts that would have explored the prospect of making reversible transactions on Ethereum last week caused controversy in the cryptocurrency industry.
Those who think that the current state of cryptocurrency, where theft is common and a typo may cost you $36 million, presents obstacles to widespread adoption praised the proposal. Others, however, disapproved of it since it advocated using a “decentralised group of judges” to settle transactional conflicts.
Does protecting users require compromising on key ideals in a sector where the next $100 million theft is inevitable? was a question that was implied in the plan.
The idea of immutability, or the idea that transactions cannot be changed once they are concluded, is a fundamental element of blockchains like Ethereum.
Because it limits the capacity of banks, governments, and other central authority to intervene and change a chain’s ledger, immutability is hailed as a crucial trait for cryptocurrencies.
But immutability can also have a negative impact on the user experience: If you fall for a scam, are the victim of a hack, or just make a mistake and transfer money to the wrong address, you have no recourse to get your money back.
The Stanford researchers stated in their article that “in 2020, $7.8 billion was taken, and in 2021, that sum increased to $14 billion” in regards to on-chain robberies. These researchers claim that the damage may have been much lessened “had there been a means to undo the erroneous transaction(s) – as in traditional finance.”
However, not everyone is persuaded.
A modest request?
New tokens are often created by Ethereum developers by writing code that adheres to specified criteria. These guidelines serve as templates that programmers can use to create new cryptocurrencies that are automatically compatible with the majority of popular Ethereum applications.
The ERC-20 and ERC-721 token standards, which are used by the majority of Ethereum-based currencies and non-fungible tokens, are expanded by the Stanford proposal (NFT). Transactions could be turned back under the new ERC-20R and ERC-721R rules if disputes are raised within a condensed period of time.
The researchers wrote in their article, “Within the short dispute time, a sender can request to reverse a transaction by persuading a decentralised set of judges to first freeze the disputed assets, and then persuading them later to reverse the transaction.
One of the researchers, Kaili Wang, sparked a commotion on Crypto Twitter when she uploaded a twitter thread outlining the plan.
On the negative side, the phrase “decentralised set of judges” seems to hit a nerve with the majority of tweeters.
Many claimed that the approach outlined in the report would be completely ineffective. According to a popular anonymous cryptocurrency investigator named FatMan, “Decentralized court systems using your proposed justice model already exist (e.g., Kleros) and regrettably they are replete with corruption […] manipulation and spreading disinformation by the founders or early token holders.
Others believed that the inclusion of human judges negated the entire purpose of decentralised finance (DeFi), which is to use code to do away with the need for transactions to be “permitted” by central authority.
The decision of whether to use permissioned or permissionless defi, according to Evgeny Gaevoy, CEO of cryptocurrency market maker Wintermute, is what matters in the end.
Gaevoy, whose company lost $160 million to an exploit earlier this month after losing $15 million to a different exploit back in June, continued, “Recent incidents haven’t affected my opinion on that at all.”
Luke Youngblood, the co-founder of the decentralised financial company Lunar Labs, criticised the plan using a regulatory framework in addition to bringing up a few minor technical issues. He added that it defies the immutability and censorship resistance that blockchains offer by creating a regulatory/censorship choke point where authorities might possibly reverse cryptocurrency transactions.
Establishing the truth
The researchers expressed their amazement at the volume of response to their work. They explained, “It is simply preliminary study.”
The goal, they added, “was to have a productive dialogue about this strategy to reducing theft.” This work *isn’t* a fully-fleshed [token] standard, no doubt about it.
Additionally, many critics appeared to have misunderstood the plan, the researchers said.
One misconception, which startled them, was that some believed the plan would replace the normal ERC-20/721 standards or make all transactions reversible on [a layer 1 blockchain]. The opposite is true. The document is merely a suggestion for a token standard, which anyone may choose to use or ignore.
However, the researchers acknowledge the difficulties in creating a fair method for resolving transaction disputes.
They declared, “If there is no way to design a court system, then this concept will not function.” The creation of a fair judicial system (or demonstrating that one does not exist) is an open subject that the public should consider.
The concept garnered tremendous support in addition to criticism from some members of the crypto community.
The Avalanche blockchain’s creator, Emin Gün Sirer, welcomed the suggestion a “Great concept,” adding that it was similar to one he had previously proposed and recommending that it “should be deployed more extensively.”
Engineer Daniel Goldman at Ethereum scaling firm Offchain Labs responded to criticism of corruptible judges by saying, “Those outcrying against this seem unaware of how many widely used ERC-20 tokens today have centralised admins with *complete* power to arbitrarily rug its holders (mint, burn, freeze, etc.) and get little-to-no pushback for it.”
The Stanford concept is described by Goldman in a way that nearly sounds like a “clean needles” scheme for permissioned DeFi. It would be preferable if “decentralised” banking applications made clear the human control levers they included in their products.
“If you’re not a fan of centralized/governable ERC-20s, don’t use them,” they say, “since nobody is talking about altering the ERC-20 standard itself.” Tweeted by Goldman. Anyone who has attempted to examine token contracts to determine their level of centralization will attest to how difficult and frustrating it is. Even having a “actually centralised” norm would be beneficial for transparency.
The creator of the blockchain Umee, Brent Xu, takes issue with the tone of the opposition to the idea. It “shows that this topic is worth pursuing” that you people “hit a significant nerve in Crypto Twitter,” he tweeted. “Before dismissing a design out of hand, the community ought to continue to examine its virtues and problems.”
