Will a Decentralized Set of Judges Help Arbitrate Crypto Transaction Disputes


Crypto The Crypto community is divided over Stanford’s proposal for reversible Ethereum transactions

Last week, a group of Stanford University blockchain researchers divided the crypto community with a research proposal that would consider creating reversible transactions on Ethereum. The proposal was welcomed by those who believe that the current state of crypto, in which theft is rampant and a typo can cost you $36 million, is impeding mainstream adoption. Others, however, were critical of its suggestion that transaction disputes be resolved by a “decentralized set of judges.” A question was implicit in the proposal: Does protecting users necessitate compromising core principles in an industry where the next $100 million theft is unavoidable? The concept of immutability – the idea that transactions cannot be reversed once they are finalized – is a key tenet of blockchains such as Ethereum. Immutability is hailed as a crucial feature for cryptocurrencies because it limits the ability of banks, governments, and other central authorities to intervene and alter the ledger of a chain.

However, immutability can be a major user-experience irritant: if you are scammed, a victim of a hack, or simply make a mistake and send funds to the wrong address, you have no recourse to recover your losses. The Stanford researchers noted in their paper that “in 2020, $7.8 billion was stolen, and by 2021, that amount had doubled to $14 billion.” “Had there been a way to reverse the offending transaction as in traditional finance, the damage could have been greatly reduced,” the researchers write. However, not everyone is convinced. Ethereum developers typically create new tokens by writing code that adheres to predefined standards. These standards function as templates; developers can clone a token template, change a few parameters, and create a brand-new cryptocurrency that is automatically compatible with the most popular Ethereum apps.

The Stanford proposal expands on the ERC-20 and ERC-721 token standards, which are used by the vast majority of Ethereum-based currencies and non-fungible tokens (NFT). The new ERC-20R and ERC-721R standards would allow transactions to be rolled back if they were disputed within a specific time frame. “Within the short dispute period,” the researchers explained in their paper, “a sender can request to reverse a transaction by convincing a decentralized set of judges to first freeze the disputed assets, and then later convincing them to reverse the transaction.” Kaili Wang, one of the researchers, sparked a firestorm on Crypto Twitter when she posted a tweet thread describing the proposal. On the critical end, the mention of a “decentralized set of judges” seemed to pique the interest of the greatest number of tweeters.

Many people claimed that a system like the one proposed in the paper would simply not work. “Decentralized court systems using your proposed justice model already exist (e.g., Kleros), and unfortunately they are rife with corruption, astroturfing, and manipulation by founders or early token holders,” FatMan, a large-followed pseudonymous crypto sleuth, tweeted. Others believed that the inclusion of human judges undermined the entire point of decentralized finance (DeFi), in which code is supposed to remove the requirement that transactions be “permitted” by central authorities. “It all comes down to whether we want permissioned or permissionless defi,” tweeted Evgeny Gaevoy, CEO of cryptocurrency exchange Wintermute. “Permissioned defi, in my opinion, is an oxymoron.” “Might as well return to legacy bank databases.”