Blockchain & Crypto

Researchers offer a solution to mitigate crypto theft – reversible transactions

Stanford University researchers developed a prototype for “reversible transactions” on Ethereum to reduce the impact of crypto theft 

crypto theft reversible transactions

Researchers offer a solution to mitigate crypto theft – reversible transactions. Source: shutterstock.com

The proposal of Stanford University researchers presents an “opt-in” token standard that would enable victims to report theft to a governance contract, with algorithms helping to identify and freeze ill-gotten gains.

The proposal was put together by blockchain researchers from Stanford, including Kaili Wang, Dan Boneh, and Qinchen Wang. Currently, it is not a finished concept but more of a “proposal to provoke discussion and even better solutions from the blockchain community.” Namely, the proposal outlines opt-in token standards similar to ERC-20 and ERC-721 dubbed ERC-20R and ERC-721R.

How it works

The prototype is not aimed to replace ERC-20 tokens or make Ethereum reversible. Instead, the opt-in standard allows a short-term post-transaction period “for thefts to be contested and possibly restored.”

A freeze request on the assets to a governance contract should summon up a decentralized court of judges that vote “within a day or two at most” to approve or reject the request. Both sides of the transaction would be able to provide evidence to the judges so that they can come to a fair decision. 

For NFTs, the process would be straightforward as the judges just need to see “who currently owns the NFT, and freeze that account.” However, freezing fungible tokens is much more complicated. For instance, the thief can split the funds among dozens of accounts through an anonymity mixer or exchange them in other digital assets. 

To tackle this issue, the researchers developed an algorithm that provides a “default freezing process for tracing and locking stolen funds.” It ensures that enough funds in the thief’s account will be frozen to cover the stolen amount. At the same time, the funds will only be frozen if “there’s a direct flow of transactions from the theft.”

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Nina Bobro

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Nina is passionate about financial technologies and environmental issues, reporting on the industry news and the most exciting projects that build their offerings around the intersection of fintech and sustainability.