A proposal out of Stanford University to make crypto transactions reversible is adding a wrinkle to discussions of crime and fraud prevention. Researchers suggested that mutability — the ability to reverse blockchain transactions — would help prevent crime.
One of the advantages of cryptocurrency is that it is possible for the market — individuals, traders and banks — to decide if reversibility is wanted. Not only would a new (reversible) cryptocurrency be able to test the acceptance or desire for reversible transactions, it would help to test the idea that reversibility reduces crime.
Although cryptocurrency is not a tool of the
Mutability would make blockchain forensics even more important to regulators and investors. As an analogy, various government agencies and financial institutions require that companies and individuals keep accurate financial records. Many fraud schemes require manipulation of these records — embezzlers have to cover their tracks, stock waterers try to convince people a company is doing better than it actually is in order to inflate the share price and on and on. When they get discovered, forensic accountants are called in to put together accurate financial statements.
Blockchain forensics firms would end up in charge of protecting the integrity of the blockchain, effectively becoming the de facto central authority — and leading to inevitable variations of Can we trust them?
But the final say on making the blockchain reversible or mutable should be the decentralized force of the market itself. The most unique thing about cryptocurrency is that there are and can be so many currencies competing against one another all at once. In early modern Europe, a stable currency emerged out of hundreds of unstable ones, backed by high-purity precious metals and managed by a central bank. This “astonishing achievement of men in tights,” as economist Nathan Lewis memorably put it, was driven not by power-hungry monarchs but by merchants in places such as London and Amsterdam who demanded stability, while ordinary people benefited because they could rely on their money being valuable.
Unless decentralized finance can come up with an alternative that improves security and stability while not compromising its principles, a similar process may be underway.
Brendan Cochrane is the blockchain and cryptocurrency partner at YK Law. He is also the principal and founder of CryptoCompli, a startup focused on the compliance needs of cryptocurrency businesses.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
