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Reversible Transactions Can Play A Key Role In Driving Crypto Adoption

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The irreversibility of blockchain transactions is often touted as proof of crypto’s security. Because a transaction cannot be undone, there is no way for scammers to initiate a chargeback after they have transferred funds to purchase a product. It provides the ultimate level of protection for sellers – especially those who might have been burned in the past using a third-party service such as PayPal, where chargebacks are not only common but also very difficult to challenge in the event of being scammed.

There’s an argument to be made that blockchain’s irreversibility is one of the reasons it is such a secure technology. However, there are downsides to this unique characteristic of blockchain. After all, blockchain users are only human, and mistakes are often made. The problem is that blockchain wallet addresses are essentially a long string of random numbers and letters, and it’s very easy to make a mistake when entering one manually. If an address is incorrect and the transaction is confirmed, those funds will either end up in the wrong wallet or be lost to the ether for eternity, never to be seen again.

A second problem arises from the complexity of DeFi, where users will often conduct a series of cross-chain transactions. For instance, they might borrow from a protocol on one chain, then bridge these tokens to another chain before depositing them in a liquidity pool. This is a three-step transaction that traders might perform to take advantage of arbitrage opportunities, but such transactions are fraught with risk in case any of the steps in the process fails.

Why Can’t Blockchain Transactions Be Reversed?

Transaction finality is a key design feature of blockchain that’s necessary due to its decentralized nature. Unlike a bank transfer, which is carried out by a trusted third-party, blockchain transactions are processed by validators when consensus among the various nodes that make up the network is reached. Because the blockchain records are stored across multiple nodes, the distributed ledger is immutable, meaning it cannot be altered by any single node, or user. If someone tried to alter a transaction, the rest of the network would know about it and reject that alteration.

Blockchains are designed this way for security reasons, as it eliminates a problem known as “double spending“, where a user might try to cheat and use the same funds to carry out multiple transactions.

So due to the way blockchains are decentralized, there is no way to reverse a transaction. The only way funds can be returned is if the person who received them decides to send them back. That can be problematic, because if funds are sent to a complete stranger, that person may well be tempted to keep them, as they won’t face any trouble for doing so.

The Problems Caused By Irreversible Transactions

While many people see blockchain irreversibility as a good thing, it can also cause big problems when mistakes are made. There’s a strong argument to be made that if cryptocurrency is to replace fiat as a mainstream payment method, then people
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