The Future of Blockchain is Reversible Transactions

Blockchain transaction irreversibility is often considered by cryptocurrency users to be a big security benefit. When someone sends Bitcoin or another digital asset, that transaction cannot be reversed. It's a strong protection against scammers that take advantage of chargebacks in the world of traditional finance, to recover their funds after making a purchase. With crypto that isn't possible, meaning that sellers are protected from such scams. 

Why Are Blockchain Transactions Irreversible? 

Irreversible transactions are a key feature of the blockchain, which is an immutable ledger that's distributed across multiple nodes. Traditional bank accounts are stored in a centralized database that's managed by a bank. The bank can therefore act as a trusted third party and remedy any errors by reversing any transaction that's required. This cannot happen with blockchain transactions, because once it has been processed it is automatically stored across all of the blockchain's nodes. These independent nodes cannot alter past transactions, as the network would reject them for doing so. 

This is a design feature of blockchain that aims to prevent something called "double spending", which is where a user attempts to use the same funds to perform multiple transactions at once. 

The Problem With Irreversible Transactions 

Despite the obvious security benefits, there are a number of users who believe blockchain irreversibility is a major drawback that needs to be remedied. They argue that unless blockchain transactions can be made reversible, cryptocurrency will never be able to rival traditional currencies. 

The problem, they say, is that humans have a tendency to make mistakes. One of the most common errors made when sending cryptocurrency is that users sometimes enter the wrong blockchain address. This is a critical error, because it means the money will end up in the wrong person's wallet – or worse, the funds will go to an invalid address and be lost forever more. 

Such mistakes are made less likely when using QR codes or copying and pasting an address, but they still happen. Even more common though is that the user simply sends the wrong amount. This is especially true with Bitcoin. Because 1 BTC is so valuable, sending small amounts generally means sending a fraction of a Bitcoin. For instance someone might send 0.003 BTC to purchase an item online. It's all too easy to accidentally enter 0.03 BTC and send ten-times the amount. If that happens, then the sender must rely on the honesty of the receiver to get their money back, and that's by no means guaranteed. 

Irreversible transactions also cause massive headaches in the wonderful world of DeFi, an alternative financial system where users often perform complex, cross-chain transactions to take advantage of arbitrage opportunities in trading. A single DeFi transaction might involve borrowing tokens from a protocol on one chang, then sending them to another chain using a bridge, then depositing them into a second protocol. They'll then receive another token for making that deposit, which might be bridged to another chain to be deposited into a third protocol. It's a complex, five-step transaction and it could go wrong at any stage, for example if the user doesn't have enough funds to pay for the gas fees involved. If that happens, the user might be stuck holding tokens they don't want. 

Finally there's the problem of hacking. In traditional finance, being hacked isn't such a big problem as the bank will likely reimburse the user for any money that they've lost. However, with DeFi and crypto there's no centralized entity that's able to make these refunds. In other words, victims have no one to turn to, and their lost funds are likely irrecoverable. 

How Can We Fix The Problem? 

The good news is that a solution to the irreversible transaction problem is now available, and it works in a way that doesn't compromise the security of cryptocurrency. So, 

The team at t3rn has created a protocol that's able to execute smart contracts while instituting a safety mechanism that will reverse any multi-step transaction in the event that one of the steps fails to go through as desired. So, if in the above DeFi transaction, the user runs out of gas on step three, the previous two steps can be reversed, with the user getting their original tokens back. 

T3rn's fail safe uses a technique that's commonly employed in the world of traditional finance. After each step of the transaction is performed, the assets will be placed into a smart contract and effectively escrowed, or held by a neutral party. The escrowed funds will then only be released once all of the steps in the transaction have been completed. If one of the steps fails, the funds in escrow are returned to where they came from, so nobody loses out. 

A similar service created by Kirobo also uses escrow to safeguard against Bitcoin transaction errors. Its product is aimed primarily at consumers, and works by generating a unique transaction code that the recipient must enter in order to receive funds from the sender. This ensures that the sender has a window of opportunity to reclaim their funds, as they can reverse the transaction until the recipient enters the code to claim the funds. 

The DeFi-focused blockchain Radix also enables reversible transactions through its advanced atomic composability features, which ensure that every step must be completed before the funds are released. However, Radix can only facilitate transactions between Radix-based DeFi apps, whereas t3rn can enable cross-chain transactions on blockchains including Ethereum, Polkadot and others. 

Erasing Transaction Errors

With reversible blockchain transactions now a reality, there are good reasons to think that this new capability could inspire further adoption of cryptocurrency and DeFi. Users can be reassured that if they send too much money, they have a way to recover those funds without relying on the integrity of the receiving party alone. Moreover, traditional banks might be willing to look more closely at cryptocurrency transactions if they know there is a way to reverse any mistakes. 

The biggest advantage of blockchain reversibility is that it creates greater trust in blockchain, reassuring users that they won't be penalized in the event that they make a mistake.