Finality in blockchain describes the unchangeable confirmation of a transaction or a set of transactions.
In the traditional financial ecosystems, after a transaction gets confirmed, it cannot be changed. Also, achieving finality on a blockchain network guarantees that a transaction is permanent and cannot be changed once it gets added to the blockchain. For the blockchain to be authentic and secure, the concept is important.
Finality is achieved by the blockchain platform’s use of consensus. Various blockchain platforms use different consensus algorithms, each with a distinct strategy of authenticating transactions and guaranteeing finality, including proof-of-stake (PoS), proof-of-work (PoW), or practical Byzantine fault tolerance.
Types Of Finality In Blockchain
Finality in the blockchain space can be economic, probabilistic, unconditional, instant, or related to the whole state of the blockchain.
On the blockchain, there are different kinds of finality, each of which defines a unique degree of certainty and irreversibility with regards to the blocks and transactions. The primary finality types on blockchain include:
Probabilistic Finality
Finality is probabilistic in most blockchain networks, mostly those that use PoW consensus, such as Bitcoin. The possibility of reversing a transaction drops exponentially when blocks are put on top of a confirmed transaction once it gets included in a block.
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Economic Finality
The economic finality concept is mostly linked with PoS networks. A transaction is considered final with regards to economic finality if reversing it would be financially unviable. In PoS, nodes or validators are needed to offer a significant stake as collateral, a specified quantity of cryptocurrency. In case they approve fake transactions, they risk losing their stake, which makes it economically irrational to act maliciously.
Instant Finality
The Ripple network provides near-instant finality, guaranteeing that once any transaction is recorded on the ledger, it is instantly confirmed and becomes fully irreversible. Transactions get validated by 150 validators. The validators may earn a spot in Ripple’s Unique Node List, which features 35 validators.
Unconditional Finality
Whenever a transaction is confirmed, it is considered fully and unconditionally final. There is no way such a transaction will be undone or altered after confirmation. It can be challenging to achieve unconditional finality and frequent calls for increased centralization or a distinct consensus method.
State Finality
In some blockchain networks, finality is the complete state of the blockchain, not only transactions. A state transition, which is a change in the blockchain’s state, such as a transaction or the execution of a smart contract, cannot be reversed or modified after it is completed. For applications such as smart contracts, where the accuracy of the whole application state is important, acquiring state finality is critical.
Why Does Finality Matter In Blockchain?
Finality in the blockchain industry offers the essential assurance of transaction permanence and validity, making it a fundamental concept for the technology’s functionality and reliability.
Interestingly, finality offers enhanced security and trust in the network, which ensures that once a transaction gets confirmed, it cannot be reversed or altered. By validating that the blockchain transaction is legitimate, finality ensures that double spending does not happen.
Double spending happens, for example, in case someone has one Bitcoin (BTC) and tries to use it in two different transactions sending the same coin to different receivers. By ensuring finality, blockchain technology prevents cases of double spending. Once a transaction gets confirmed and recorded on the blockchain, the digital asset is believed to be spent and cannot be used in any more transactions.
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Finality is highly important in the smart contracts space. The details of the agreement between the seller and buyer are directly encrypted into smart contracts, which are a type of self-executing code. Finality ensures that the contracts’ outcomes are deterministic and unchangeable.
Moreover, finality is the way decentralized applications (dApps) ensure their activities remain trustworthy and safe. It guarantees that transactions and decisions made within the applications are irreversible and unalterable.
Furthermore, the blockchain develops trust among the network’s members and users by making the executed transactions final. Users’ trust in the network is boosted by acknowledging that all transactions are irreversible.
Issues That May Prevent Finality Achievement In Blockchain
Issues like network latency, forking, smart contract vulnerabilities, and 51% attacks prevent blockchain transactions from reaching finality levels.
Whenever a blockchain network divides into multiple paths, forking happens, producing multiple versions of the transaction history. The consensus method is tested by the divergence, making it quite hard to establish what version is legitimate, and that delays finality.
For example, hard forks can cause disagreement among the community or developers on protocol updates. Until that issue gets settled, various factions may keep supporting PoW blockchains, which eventually results in a lack of finality.
Network latency, which is the delay in data communication between nodes, also complicates these matters. Slow network links can create errors in transaction order and validation by delaying any propagation of transaction information across the blockchain platform.
Moreover, a smart contract’s vulnerability may result in unexpected behavior, enabling criminals to exploit it and reverse transactions. Likewise, an entity with over 50% of the network’s mining power in a PoW blockchain might alter the history of the blockchain and reverse transactions. Such a scenario undermines security and finality.
Because of these issues, the blockchain’s integrity is vulnerable, requiring the implementation of strong consensus algorithms and efficient network protocols by developers to minimize forking and latency issues and ensure the timely and secure finality of the executed transactions.
