In addition to its decentralized nature, one of the most important characteristics of blockchain technology is that it makes transactions impossible to reverse. Imagine that you are a dedicated user of crypto and blockchain technology. In that scenario, you might have already experienced this situation, in which centralized exchanges issue dire warnings about the possibility that you would lose all of your coins permanently if you transfer them to an incorrect address or over an incorrect network by accident.
Within the cryptocurrency ecosystem, hard conversations and arguments have been sparked as a result of the irreversibility of blockchain transactions. In spite of the fact that supporters of crypto believe that this feature shields the system from outside meddling, opponents of the technology see this characteristic as a weakness that could slow down the widespread acceptance of crypto as a money. Once a transaction has been issued, even to the incorrect address, it cannot be canceled or reversed. There is no way to take back a transaction once it has been committed, and there is no undo option either; this is a problem that might potentially be fatal to any digital currency that is integrated into the monetary system.
In this piece, we take a look at the arguments in favor of the irreversibility of blockchain transactions, the negatives of this characteristic, and the potential solutions that could make the future of blockchain transactions more acceptable to the general public.
Why Can’t Blockchain Transactions Be Undone When Something Goes Wrong?
When Satoshi first introduced Bitcoin in 2009, the issue of double spending was one of the most significant challenges that required a speedy solution. This was especially true for electronic currency. Simply put, this is an assault in which a person might spend their money and save it to use in another transaction. The launch of Bitcoin was intended to solve the problem of double spending, as detailed in the whitepaper for Bitcoin.
Satoshi created the network with built-in safeguards such as proof-of-work (PoW) and dynamic mining difficulty, both of which make it impossible for anyone to make a double transaction using bitcoins. In consensus techniques based on proof-of-work, each time a cryptographic transaction is carried out, its details are sent to a network of miners, who then confirm the transaction, compile it with other transactions, and add it to a block. It is possible to consider the transaction to have been committed once the block has been successfully generated and validated. The procedure is repeated, and new blocks are added, in order to construct a blockchain, which will have the public’s access to the verified history of the transactions.
In addition to this, each new block that is added to the chain also includes a confirmation of the transactions that occurred in the blocks prior to it. This links all of the blocks in the blockchain and stops any earlier transactions from being able to retrace. As a result, it becomes nearly hard to make a double expenditure and enables transactions to be final. Although it is theoretically possible to undo the effects of a single transaction confirmation with enough processing power, most blockchains necessitate more than one confirmation before considering a transaction to be final and unchangeable. For example, Bitcoin transactions need to be confirmed by at least five nodes, whereas Ethereum transactions need to be confirmed by anywhere from 10 to 20 nodes. Ethereum just recently finished its transition to proof-of-stake (PoS).
However, irreversibility does come with a number of downsides and disadvantages, the most significant of which is the fact that humans are fallible and can make mistakes, which could result in users losing their assets with no way to get them back.
The Drawbacks Inherent in Having Transactions on the Blockchain That Cannot Be Undone
As was explained above, individuals who advocate for the irreversibility of blockchain transactions contend that these transactions are advantageous to the user since they circumvent any control exerted by third parties, such as governments or banks. In addition to this, it protects against instances of attacks that include double spending. However, a more in-depth examination of this topic reveals that having irreversible transactions does come with its own share of drawbacks.
Because irreversible transactions do not provide a “back,” “undo,” or “Control Z” option, the adoption rates of cryptocurrency are hampered. This is the first and most significant point to make. Because crypto is attempting to position itself as the future of contemporary finance, the availability of a reversible button is essential for its widespread acceptance. The sender has no room for error because even a simple error caused by a human, such as accidentally copying the wrong address or having a fat finger, could result in the loss of a significant sum of money.
In addition, despite the fact that the irreversibility feature eliminates the possibility of duplicate spending and, in some respects, reduces fraud, there has been an increase in the number of instances of robbery and ransom using cryptocurrencies as a result of this feature. In the world of traditional banking, banks rely on the reversibility feature to protect themselves against fraudulent transactions and ransom payments. Despite the fact that blockchain wallets are impenetrable, in the event that a hacker or a thief is able to access your wallet, they may empty it of all of its contents, leaving you with no chance of recovering your assets. As soon as the criminal gains access to your wallet and completes a transaction, the game is over.
If you don’t have the reversibility function, it will also be unable to identify and prevent fraud, which means that you won’t be able to realize that a hacker has accessed your wallet and take any action to fix the problem. All electronic transactions involving a bank, such as credit card payments, bank account transfers, and any other electronic transactions, come equipped with a “undo” button. This button enables the bank to cancel any pending transfers in the event that your account has been compromised. It is not impossible to track down the hacker and retrieve the stolen money.
Are Transactions That Can Be Undone the Way Forward for Blockchain?
As can be seen in the paragraphs that came before, irreversible transactions come with a number of limitations, any of which could prove expensive for users, particularly if cryptocurrencies are ever to gain widespread acceptance. In spite of the fact that a modification to irreversibility is required in space, it ought to be carried out in a fashion that does not compromise the safety or decentralization of blockchains.
In spite of the fact that the implementation of such a feature may appear to be hard, it is actually quite simple. One of the next blockchain projects is called t3rn, and from what I can see, it is introducing new technologies that lessen the downsides of irreversibility while keeping the security qualities of blockchain transactions.
The platform is a smart contract hosting protocol that provides an innovative answer to the problem of interoperable smart contract execution. It has fail-safe mechanisms built in to ensure that every transaction is stored in an escrow before it is confirmed, and it offers an innovative solution to smart contract execution. The platform supports the execution of several chains, which means that any blockchain platform may utilize the capability to check that executions are carried out correctly and that addresses are accurate before a transaction is completed.
t3rn is a smart contract hosting platform that provides a novel solution to the execution of interoperable smart contracts. These fail-safe procedures are embedded into the platform, which means that effective execution across several chains can always be ensured. The execution of changes is escrowed so that they can be rolled back in the event that they are unsuccessful.
If blockchain technology is ever going to be used successfully on a worldwide scale, solutions like these are where it’s headed in the future.
In summing up, it can be said that the irreversibility of blockchain transactions has both advantages and disadvantages. Despite this, it continues to cause more problems than it solves. Even while supporters of the feature say that it is essential to the system’s security, this does not imply that there should be no adjustments made.
It is possible to implement transaction reversibility without compromising the security features of blockchains in any way. Blockchain and cryptocurrencies could make further strides toward worldwide adoption with the implementation of reversible transactions. This would make the technology more accessible, easier to use, and beneficial to the common person when compared to standard electronic money systems.