Blockchain Finality: What is Finality in blockchain and why is it important

18 Nov 2023 by Harry Newman 4 min read

Blockchain finality is crucial for the integrity and trustworthiness of blockchain transactions.

For a blockchain to be secure and authentic, blockchain finality is crucial.

Blockchain finality provides a foundation for the reliability and functionality of transactions, assuring their validity and truthfulness.

What is Blockchain Finality?

Blockchain finality refers to the point where a transaction or a block of transactions becomes immutable, they cannot be altered or reversed.

Finality in a blockchain is important for the integrity and trustworthiness of blockchain transactions.

Once a transaction is added to the blockchain, it is accepted as the single source of truth by all network participants.

Each blockchain uses different consensus mechanisms with unique methods of validating transactions and ensuring finality, such as Proof-of-Work and Proof-of-Stake.

A certain number of block confirmations have to happen to ensure the data is correct.

Finality doesn't always mean immediate. In traditional finance, you can look at the finality of buying a phone with either cash or a credit card.

Buying a phone with cash is immediately settled and final, whereas buying with a credit card the shop owner might have to wait for a few days until they receive the money from the credit card company, in this time the transaction can be reversed or cancelled.

If a network were to fork this could create a challenge to blockchain finality, especially in PoW systems, in extreme cases, this can lead to temporary uncertainties in the finality of transactions.

PoW networks with sufficiently distributed validators and nodes are considered pretty safe, however, there can still be attacks that could impact finality.

Such as a 51% attack, where once a miner secures more than 50% of the network's mining hash rate in any given PoW blockchain they can reverse transactions and double-spend funds.

Types Of Blockchain Finality

There are a few types of finality in blockchains, the main types are:

Probabilistic Finality

Finality is probabilistic in the majority of blockchain systems that use the PoW consensus mechanism, such as Bitcoin. This implies that the finality of a transaction increases with each block added after it as the likelihood of reversing a transaction diminishes when more blocks are added.

Economic Finality

Economic finality is often associated with the PoS consensus mechanism; in PoS, validators or nodes are required to provide a specific quantity of crypto as collateral. If the validator approves fake transactions or acts maliciously towards the network, they run the risk of losing their stake, making it irrational to act maliciously.

Absolute Finality

In absolute finality, the transaction is immediately considered finalised as soon as it is included in a block and added to the blockchain. This is done through a tendermint consensus mechanism.

Why is Blockchain Finality important?

Blockchain finality is crucial in establishing trust within a blockchain network, ensuring users that once a transaction is finalised, it is immutable, creating a secure environment for cryptocurrency transactions.

It is important that transactions are settled without the fear of reversal, this provides a sense of security to all users.

With clear finality, blockchains become more efficient and predictable, there is no need for continuous monitoring of other transactions as users can be confident about the outcome.

In a legal sense, blockchain finality aligns blockchain transactions with traditional finance systems, once a payment is processed, it is legally binding and non-reversible.

This can cause some issues, however, as in cases of fraud or mistakes, transactions are irreversible.

Double spending is unable to happen when there is blockchain finality, once a transaction is confirmed and recorded on the blockchain it is considered spent and cannot be used in any further transactions.

This prevents someone from attempting to transmit a transaction of, for example, one Bitcoin in two transactions to two different receivers.

With smart contracts the details of the agreement between a buyer and seller are directly embedded into the smart contracts, which are self-executing. Blockchain finality guarantees that these contracts' outcomes are unaltered.

Overall user trust in a network is greatly increased in a system where transactions are final and irreversible.

Final Thoughts

Blockchain finality is a fundamental aspect of blockchain technology, ensuring trust, efficiency and security in a decentralised system.

Ensuring a transaction cannot be changed or reversed is essential, if cryptocurrencies are to achieve mass adoption, transactions need to be finalised and immutable to create a fair and trustless system.

FAQ

What is blockchain finality?

Blockchain finality refers to the point where a transaction or a block of transactions becomes immutable, they cannot be altered or reversed.

Why is blockchain finality important?

Blockchain finality is crucial in establishing trust in the blockchain network, ensuring users that once a transaction is finalised, it is immutable, creating a secure environment for cryptocurrency transactions.