The decentralized nature of Bitcoin, while providing user autonomy, also excludes the possibility of a centralized authority to intervene in disputes or transaction reversals.
The decentralized and trustless setup of Bitcoin is there to exactly prevent the intervention of some centralized authority for whatever reason. I'll come to apparent problems later.
- Private Key Security: Private keys are the linchpin of user security in the Bitcoin network. They are targets for malicious actors because their compromise grants access to the user's funds.
- Exchange Security: Despite improvements over the years, many exchanges still suffer from security flaws that can be exploited by hackers.
- Phishing and Social Engineering: Users can be deceived into giving away sensitive information, leading to the theft of credentials and funds.
Private keys can be handled securely (hardware or airgapped wallets, multi-sig). User needs security awareness, education and practice.
Software security at exchanges is more difficult as those tend to show off with all sorts of fancy features that may become a security nightmare.
Phishing and social engineering is again related to user's awareness, education and knowledge of secure best practices.
- Voting Protocol: After reviewing the evidence, CVNs submit their votes through a secure blockchain interface. Votes are encrypted and revealed only after all CVNs have voted to prevent influencing decisions.
Denial of Service possible when one CVN refuses to vote. How is that handled?
Execution of Reversal Transactions
How is this supposed to actually happen? Your whole construct seems to be built around the fact that a theft is immediately detected, merely before a transation is confirmed, isn't it? What if coins were moved and confirmed, possibly multiple times, before a theft is detected? How do you expect to reverse transactions that are burried under multiple blocks?
- Flagging Fee: A non-refundable fee, constituting 10% of the disputed transaction value or a minimum threshold (whichever is greater), is required to file a FlaggedTransaction. This fee serves as a deterrent against frivolous or malicious claims.
Assume all coins were stolen, the victim doesn't have any more coins, might be broke. How is the victim supposed to cover the Flagging Fee?
To potentially get back 90% of the stolen coins is certainly better than 100% loss. But still, the victim has to afford another 10% of the stolen mass to initiate the process where it isn't garanteed that he get's the supermajority of votes for the reversal. Worst case for the victim is a 110% loss!
- Strict Verification for CVN Applicants: Implementing rigorous checks on the identity, reputation, and historical activities of CVN applicants to prevent collusion and ensure only the most reliable participants are selected.
So, total KYC for CVNs is a mandatory feature? Good luck with that...
No way!!
I will stop here for now as it's a lot of material.