Reversibility of transactions on Ethereum will guarantee a refund of transactions made during a Crypto Theft

Imagine that one day you unwittingly fall for a cryptocurrency phishing scam and the con artist manages to take 10 ether (ETH) from you. There isn't much you can do because cryptocurrency transactions are final, right? Well, not quite yet.

Adding reversible transactions to Ethereum has recently been suggested by a group of Stanford researchers as a way to guarantee that stolen cryptocurrency is returned to its rightful owner. If a standard like this were to be implemented, the disappointed thief would be left out of pocket while your 10 ETH would theoretically ricochet back into your wallet. Reversibility would likely be a well-liked feature, particularly with the risk-averse people who have so far refrained from adopting Ethereum. Costs must also be taken into account, though. Any time a component of a payment system is changed to address a specific issue, additional issues are subsequently created elsewhere on the network. No such thing as a free fix exists. Let's examine these charges in more detail.

Reversibility would likely be a well-liked feature, particularly with the risk-averse people who have so far refrained from adopting Ethereum. Costs must also be taken into account, though. Any time a component of a payment system is changed to address a specific issue, additional issues are subsequently created elsewhere on the network. No such thing as a free fix exists. Let's examine these charges in more detail.

Everything from large-scale attacks to modest retail phishing schemes uses cryptocurrency theft. Kaili Wang and associates have proposed creating an Ethereum token standard that permits transactions to be momentarily reversed to make the crypto economy more secure. A victim of theft could appeal to a decentralized arbitrator during that period, let's say four days, to get their stolen cryptocurrency restored. The inventor of the Bitcoin blockchain, Satoshi Nakamoto, would be horrified. After all, the white paper by Nakamoto may be interpreted as a tirade against reversible transactions. Nakamoto claimed that because financial institutions "cannot avoid mediating conflicts," businesses "must be suspicious of their clients, harassing them for more information than they would otherwise require."

Ethereum is not meant to be entirely reversible, according to Stanford academics. Reversible tokens are not for everyone, thus they can still only interact with non-reversible tokens. Reversible tokens may be the extra barrier that entices people who are put off by the high level of expertise needed to utilize Ethereum responsibly. The trade-offs of payment systems are extremely complicated. To solve one problem, another must be created. This can be best understood in terms of the following too-small-blanket conundrum. Consider the scenario where you want to sleep but your blanket doesn't reach your toes. Your neck is exposed after you pull it down. Your shoulders are now exposed as you turn the blanket so that it covers both your toes and your neck. There is no ideal solution. You must carefully consider which parts of your body to cover and which to leave bare. Payments follow the same rules. Reversibility may lessen theft, but it may also expose the network to new issues, namely fraud reversal, according to the too-small-blanket paradox. Credit card processing systems provide you with a decent sense of what to anticipate.

Reversibility would affect fungibility if it were added to Ethereum. Assets are fully interchangeable when a thing is fungible. A payment system should be fungible. The dollar payment system is simpler to operate if all dollars are convertible.

The Ethereum network would be divided in half by reversibility. Sophisticated traders would largely stick to non-reversible tokens rather than trading reversible tokens. It's just too hazardous to have one's $10 million trade undone due to a previous owner's request for a reversal appeal. However, less knowledgeable users would undoubtedly prefer the security of reversible tokens. If the two token kinds traded 1:1, dividing the network in half wouldn't be a major concern. Sadly, they most likely wouldn't.