Stanford University’s proposal to make crypto transactions reversible adds a wrinkle to discussions of crime and fraud prevention. The 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 whether a reversal is desirable or not. The new (reversible) cryptocurrency will not only be able to test the acceptance or willingness of reversible transactions, but will also help test the idea that reversibility reduces crime.

Although cryptocurrency is not a tool of the dark web, it is sometimes portrayed as such. Scams, fraud, and other forms of crime occur and grow in proportion to the amount of money invested and the number of coins in circulation.

One of the main ways law enforcement deals with crime in crypto markets is through blockchain investigations. Blockchain forensics is a growing area of ​​law enforcement where transactions are analyzed to track and recover stolen or fraudulently obtained crypto assets. It first appeared a few years ago when the US Internal Revenue Service used it to recover the ransom paid by the Colonial pipeline to hackers who had successfully taken control of it. However, in the highly decentralized and risky world of cryptocurrencies and non-fungible tokens, blockchain forensic analysis becomes an important tool for compliance as well as regulation, creating potential consequences for legitimate traders.

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Investigators closely scrutinize transactions recorded on the blockchain, looking for signs that people are trying to hide or disguise the tokens. Some of them include fast switching between ledgers, the use of tools that hide fake IP addresses, multiple micro-transactions, and the use of Acrobat or a mashup service, where encryption is aggregated from many sources to disguise its source.

The possibility of reversal for law enforcement will greatly facilitate the recovery of stolen and fraudulently obtained funds, and reduce the potential rewards for crime. It can reduce risks for banks and other established financial institutions by offering cryptocurrency services to the general public rather than as private investments. It will also reduce any problems associated with human error, such as “fat fingers” errors. This will help make cryptocurrency more useful for exchange, investment and other daily uses.

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On the other hand, reversibility – or changeability – will also satisfy the idea of ​​the blockchain itself. Probability can make the blockchain as vulnerable to manipulation as any other repository of information, which could weaken one of its most important security features. And trying to impose a standard to determine when the blockchain can be liberalized would seemingly infringe on another important function: decentralization.

The anonymous, decentralized nature of cryptocurrency financing makes tension between regulators and cryptocurrencies somewhat inevitable. For ideological or privacy reasons, many people are attracted to the promise of anonymity that blockchain offers, but these features attract more scrutiny from regulators as the same anonymity can enable transactions ranging from tax-free ones to selling illicit drugs or weapons or enabling countries like North Korea to evade international sanctions.

As cryptocurrencies become more widespread, financial institutions and investors will also pressure regulators and exchanges to adopt protections or weaken anonymity to comply with securities and anti-money laundering laws.

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The opportunity will make blockchain realization more important for regulators and investors. By way of analogy, various government agencies and financial institutions require businesses and individuals to keep accurate financial records. Many fraud schemes require manipulation of these records – hackers have to cover their tracks, and stock pickers try to convince people that the company is doing better than it actually is to constantly inflate the stock price. Upon their discovery, forensic accountants are called to compile accurate accounts.

Blockchain forensic companies will end up protecting the integrity of the blockchain, effectively becoming the de facto central authority – leading to the inevitable differences in can we trust them?

But the final word to make the blockchain reversible or mutable must be the decentralizing force of the market itself. The most unique thing about cryptocurrency is that there are and can be many currencies competing with each other simultaneously.

Source: CoinTelegraph