The future of Blockchain is reversible transactions
Irreversibility of blockchain transactions is often considered by cryptocurrency users as a major security advantage. When someone sends Bitcoin or any other digital asset, that transaction cannot be reversed. There is strong protection against fraudsters who take advantage of chargebacks in the traditional financial world to get their money back after making a purchase. With crypto, that is not possible, which means that sellers are protected from such fraud.
Why are blockchain transactions irreversible?
Irreversible transactions are a key feature of the blockchain, which is an immutable ledger distributed across multiple nodes. Traditional bank accounts are stored in a centralized database managed by a bank. The bank can therefore act as a trusted third party and correct any errors by reversing any transaction that is necessary. This cannot happen with blockchain transactions, because once processed, it is automatically stored across all the nodes of the blockchain. These independent nodes cannot change 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 expenses”, which is where a user attempts to use the same funds to perform multiple transactions simultaneously.
The problem of 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 addressed. They argue that unless blockchain transactions can be made reversible, cryptocurrency will never be able to compete with traditional currencies.
The problem, they say, is that humans tend to make mistakes. One of the most common mistakes made when sending cryptocurrency is that users sometimes enter the wrong blockchain address. This is a critical mistake, because it means the money ends up in the wrong person’s wallet – or worse, the money goes to an invalid address and is lost forever.
Such errors are made less likely when you use QR codes or copy and paste an address, but they still happen. Even more common is that the user simply sends the wrong amount. This is especially true with Bitcoin. Because 1 BTC is so valuable, sending small amounts usually means sending a fraction of a Bitcoin. For example, someone might send 0.003 BTC to buy an item online. It is far too easy to accidentally enter 0.03 BTC and send ten times the amount. If that happens, the sender must rely on the recipient’s honesty to get the money back, and that is 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 trade. A single DeFi transaction might involve borrowing tokens from one protocol on a chang, then sending them to another chain using a bridge, and then depositing them into a second protocol. They will then receive another token for making the deposit, which can be linked to another chain to be inserted into a third protocol. It’s a complex, five-step transaction, and it can go wrong at any time, for example if the user doesn’t have enough funds to pay for the gas charges involved. If that happens, the user may be stuck with tokens they don’t want.
Finally, there is the problem of hacking. In traditional finance, getting hacked isn’t such a big deal as the bank is likely to reimburse the user for money they’ve lost. But with DeFi and crypto, there is no centralized entity capable of making these refunds. In other words, victims have no one to turn to and their lost funds are likely to be irretrievable.
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 does not compromise the security of cryptocurrency. So,
The team at t3rn has created a protocol capable of executing smart contracts, while establishing a security mechanism that will reverse any multi-step transaction in the event that one of the steps does not go through as desired. So, if the user runs out of gas in step three of the DeFi transaction above, the previous two steps can be reversed and the user gets their original tokens back.
T3rn are fail safe uses a technique commonly used in the traditional financial world. After each step of the transaction is completed, the assets will be placed in a smart contract and effectively escrow, or held by a neutral party. The deposited funds are only released when all steps of the transaction have been completed. If one of the steps fails, the escrow funds are returned to where they came from, so no one loses.
A similar service created by Kirobo also uses escrow to protect against Bitcoin transaction errors. The product is primarily aimed at consumers, and works accordingly generate a unique transaction code that the recipient must enter to receive funds from the sender. This ensures that the sender has a window of opportunity to reclaim their money, as they can reverse the transaction until the recipient enters the code to claim the money.
The DeFi-focused blockchain Radix also enables reversible transactions through its advanced functions for atomic composition, which ensures that each step must be completed before the funds are released. However, Radix can only facilitate transactions between Radix-based DeFi apps, while t3rn can enable cross-chain transactions on blockchains including Ethereum, Polkadot and others.
Erasure of transaction errors
With reversible blockchain transactions now a reality, there are good reasons to believe that this new opportunity could inspire further adoption of cryptocurrency and DeFi. Users can rest assured that if they send too much money, they have a way to get those funds back without relying on the integrity of the receiving party alone. Also, traditional banks may be willing to take a closer look at cryptocurrency transactions if they know there is a way to reverse any mistakes.
The biggest benefit of blockchain reversibility is that it creates greater trust in the blockchain, assuring users that they will not be penalized in case they make a mistake.