Is Crypto Really Crypto When It's Reversible?

Welcome to Bloomberg Crypto, our twice-weekly look at Bitcoin, blockchain and more. In today’s edition,  imagines a reversible crypto world:

Crypto’s Undoing

For proponents of blockchain technology, some of its biggest strengths lie in the fact that open-source digital ledgers are under no one’s control, and that transactions, once made, can’t be tinkered with.

On major blockchains like Ethereum, anyone can be involved in operations, and no one party should have veto power — a hallmark of a so-called permissionless system, where everything is governed by computer code. Immutability of transactions is a key part of this democratic system, designed to ensure that no government, corporation or any one person can ever alter or “censor” the blockchain. 

The same features can also mean headaches for end users. If you accidentally send money to a wrong address, or if someone steals your coins or your Bored Ape NFT, that often means there’s no one to help. The coins are gone forever (unless your losses are big enough for law enforcement to bother with; even then, recovery isn’t guaranteed). 

Until now, most people have agreed to accept this, with blockchain’s benefits seen as more than outweighing these potential pitfalls. Still, as the dollar amount of stolen crypto from hacks and heists rises into the  this year alone, some say that tweaks may be in order.

A team from Stanford University recently creating “reversible” Ethereum-based tokens — essentially, coins or NFTs designed in such a way that users could undo a transaction during a set period of time — say, three days. At the end of the three days, if there are no issues, the transaction becomes permanent. But if someone stole your tokens, you could request to have the funds returned, via a decentralized network of judges, who review disputes. The Stanford team even created some prototypes, and addressed complex scenarios, where thieves take stolen reversible tokens through multiple “mixers” designed to obscure their identity.

Lauded by as an idea whose time has come, the proposal is anathema to many crypto diehards who believe that blockchains are perfect as they are, and such tweaks could expose users — especially of decentralized-finance applications, which let people trade, borrow and lend coins independent of centralized authorities — to new risks, including the potential corruption of judges.

“All comes back to whether we want permissioned or permissionless defi,” Evgeny Gaevoy, co-founder of crypto market-maker Wintermute, tweeted last month after his own platform lost $160 million in a hack. “In my opinion, permissioned defi is an oxymoron. Might as well get back to databases run by legacy banks. Recent events haven’t changed my opinion on that at all.” 

Whether the idea of reversible transactions goes anywhere remains to be seen. Ethereum developers’ roadmap is already packed as it is. Even if implemented, the feature could see low rates of adoption if purists shun it.

For their part, the Stanford researchers say their invention is seeking to supplement rather than replace the existing Ethereum token world. If the Stanford team can’t convince the diehards to accept this, maybe the ever-growing number of hacks will. 

Charting it out

Hearing them out

What we’re reading (and writing)

• Crypto Overhaul Fizzles in US, Leaving the Industry in Limbo
• Asia’s Crypto Craze Spurs Swath of Fund Launches (Financial Times)
• Crypto Fugitive Do Kwon Is Set to Lose South Korean Passport
• Farm to Bottle? How the Blockchain Helps a Whisky and Rum Producer Protect His Brand (Fortune)
• Grayscale Sets Up Entity to Invest in Bitcoin Mining Hardware
• Taliban Has Crushed Afghanistan’s Crypto Market, Study Says

Thank you for reading. If someone forwarded this to you, sign up here. We welcome all feedback at [email protected]

Crypto IRL is a new Bloomberg video series starring Katie Greifeld and Tim Stenovec. Episodes premiere on Thursdays at 8:30 p.m. New York time. Go to Bloomberg QuickTake at www.bloomberg.com/qt for more information about how to watch the show live, or find them on YouTube.

— With assistance by Vildana Hajric