- The Stanford University academics’ proposal for reversible blockchain transactions adds a new dimension to discussions about crime and fraud prevention.
- Mutability — the ability to reverse blockchain transactions — may assist in crime prevention, according to researchers.
- One advantage of cryptocurrencies is that the market — individuals, traders, and banks — may decide whether or not reversibility is desirable. Reversibility or mutability would contravene the blockchain’s core notion.
- Blockchain forensics is one of the key tools used by law enforcement to combat crime in cryptocurrency markets, and blockchain forensics companies would be responsible for safeguarding the blockchain’s integrity.
A proposal from Stanford University researchers on reversible blockchain transactions adds a new element to conversations about crime and fraud prevention. Researchers hypothesized that mutability — the ability to reverse blockchain transactions — may aid in crime prevention.
How could reversible blockchain transactions decrease crypto-related crime?
One of the benefits of cryptocurrencies is that the market — people, traders, and banks — may determine whether or not reversibility is desired. A new (reversible) cryptocurrency would not only be able to test the acceptability or demand for reversible transactions, but it would also serve to test the claim that reversibility decreases crime.
Although Bitcoin is not a dark web tool, it is occasionally presented as such. Fraud and other sorts of criminality do occur, and their frequency increases in direct proportion to the amount of money spent and the number of coins transacted.
Blockchain forensics is one of the primary methods used by law enforcement to combat criminality in cryptocurrency marketplaces. Blockchain forensics is a burgeoning discipline in law enforcement that analyzes transactions to track down and recover stolen or illegally obtained cryptocurrency assets.
It rose to popularity a few years ago when the United States Internal Revenue Service successfully utilized it to collect the ransom paid by Colonial Pipeline to the hackers who took control of it. However, in the extremely decentralized and dangerous world of cryptocurrencies and nonfungible tokens, blockchain forensics is becoming a key tool for compliance and regulation, potentially affecting legal traders.
Investigators extensively examine blockchain transactions for indicators that someone is attempting to conceal or disguise their tokens. Some of the options include fast-moving between ledgers, utilizing tools that mask or fake IP addresses, many short transactions, and employing a tumbler or mixer service, which pools crypto from several sources to hide its origin.
Reversible blockchain transactions would make it considerably easier for law enforcement to retrieve stolen and illegally obtained cash, lowering the potential incentives from criminal activity. This may lessen the risk for banks and other established financial institutions in providing bitcoin services to the general public rather than as a specific investment. It would also eliminate any issues caused by human mistakes, such as “fat finger” mishaps. This would make cryptocurrencies far more usable for trading, investing, and other everyday purposes.
Do reversible blockchain transactions contradict the nature of blockchains?
Reversible blockchain transactions—or mutability—on the other hand, would contradict the concept of the blockchain itself. Mutability might render the blockchain as prone to manipulation as any other information store, stifling one of its primary security benefits. Attempting to set a standard for when the blockchain can be modified appears to contradict another key feature: decentralization.
Because cryptocurrency finance is anonymous and decentralized, friction between authorities and cryptocurrencies is unavoidable. Many people are drawn to the blockchain’s promise of anonymity for ideological or privacy reasons, but those features are attracting more scrutiny from regulators because that same anonymity can enable transactions ranging from the sale of illegal drugs or weapons to enabling countries such as North Korea to evade international sanctions.
As cryptocurrencies gain popularity, financial institutions and investors will pressure authorities and exchanges to provide safeguards or reduce anonymity in order to comply with security and anti-money laundering regulations.
Blockchain forensics would become considerably more crucial to regulators and investors as a result of mutability. As an example, several government organizations and financial institutions demand businesses and people maintain accurate financial records. Many fraud schemes necessitate the manipulation of these documents – embezzlers must conceal their trails, stock waterers must convince people that a business is performing better than it is in order to inflate the share price, and so on. When they are identified, forensic accountants are summoned to prepare proper financial accounts.
Blockchain forensics businesses would wind up in charge of ensuring the blockchain’s integrity, essentially becoming the de facto central authority — and inevitably leading to versions of “Can we trust them?”
However, the market’s decentralized force should have the last word on reversible blockchain transactions. The most distinctive aspect of cryptocurrencies is that there are and maybe numerous currencies fighting against each other at the same time. A stable currency arose from hundreds of unstable ones in early modern Europe, backed by high-purity precious metals and regulated by a central bank.
This “astonishing achievement of men in tights,” as economist Nathan Lewis famously called it, was pushed not by power-hungry rulers but by merchants in locations like London and Amsterdam who needed stability, while ordinary people profited because they could trust their money. A similar trend may be ongoing unless decentralized finance can come up with a solution that increases security and stability without sacrificing its objectives.