Transaction reversibility

One of main reasons most people I know (incl. myself) do not use crypto is the lack of transaction reversibility. It’s a critical part of financial transactions, that greatly minimizes many negative outcomes like thefts, hacks, fraud, human error etc.

However, to achieve transaction reversibility, you need a strong legal system with robust dispute resolution mechanisms. This is a difficult, complex task, and requires a lot of subjectivity. This is the main work and cost of financial intermediaries, not the infrastructure - that’s very easy in the digital age.

One of the limitations of public blockchains is they can only process objective outputs . This means transaction reversibility is impossible to achieve on public blockchains, because of the aforementioned subjectivity. Any attempt at doing so will erode the unique proposition of public blockchains - neutral, universal access.

Of course, one can build transaction reversibility layers on top of public blockchains, but this only makes sense for usecases unique to blockchains - like stablecoins. Indeed, this is the service Tether or Circle already provide, for example.

It doesn’t make any sense to move, let’s say, Visa payments, to a public blockchain. The infrastructure is necessarily less efficient, while the dispute resolution costs (which are the dominant costs anyway) remain largely unchanged. Automated reversibility proposals have been suggested which include a delay period, which may be worth considering for minimizing at least some errant transactions - however, it’s near impossible to account for all theft, hacks, fraud etc. without subjectivity. Maybe some smart AGI can do so in the distant future, but we have no concrete evidence for that at this point.

Yet, none of this is a problem. Public blockchains offer unique niche usecases difficult to achieve using traditional infrastructure. It’s prudent to simply accept the lack of reversibility as a trade-off, while focusing on harnessing the properties that lead to these unique usecases in the first place. This means embracing the neutrality, while accepting the impossibility of transaction reversals as a trade-off. With $30B+ in value transferred every day over Ethereum/L2s, Tron and Bitcoin, there’s clearly enough of a market for irreversible, neutral transactions; though this will always be a niche relative to the trillions BIS settles. And that’s just fine - choice is great.