Finality in blockchain refers to the unchangeable confirmation of a transaction or a block of transactions. This is attained by the blockchain network’s use of consensus.
Different blockchain networks employ various consensus algorithms, each with a unique method of validating transactions and ensuring finality, such as proof-of-work (PoW), proof-of-stake (PoS), or practical Byzantine fault tolerance.
As Gartner puts it, blockchain is a paradigm shift that enables entirely new opportunities. The technology makes it possible for two or more parties to exchange value in digital environments without having an intermediary validating the transaction.
This is why understanding the finality in this technology is important in maximising its benefits.
In conventional financial systems, once a transaction is confirmed, it cannot be undone. Likewise, attaining finality on a blockchain network ensures that a transaction is permanent and cannot be modified after it has been added to the blockchain. For the blockchain to be secure and authentic, this concept is crucial.
B2B tech journalist Dilip Kumar Patairya talks on the five types of finality in blockchain and its importance in the business:
Probabilistic finality
Finality is probabilistic in the majority of blockchain systems, especially those that employ PoW consensus, like Bitcoin. The likelihood of reversing a transaction diminishes exponentially when blocks are put on top of a confirmed transaction after it has been included in a block.
Economic finality
The economic finality concept is often associated with PoS systems. A transaction is considered final in terms of economic finality if going back on it would be financially unviable. In PoS, validators or nodes are required to provide a stake as collateral, a specific quantity of cryptocurrency. If they approve fake transactions, they run the risk of losing their stake, making it economically irrational to act maliciously.
Instant finality
The Ripple network offers near-instant finality, ensuring that once a transaction is recorded on the ledger, it is immediately confirmed and irreversible. Transactions are validated by 150 validators. These validators may potentially earn a spot in Ripple’s Unique Node List, which comprises 35 validators.
Unconditional finality
When a transaction is confirmed, it is deemed to be fully and unconditionally final. Under no circumstances is the transaction susceptible to being undone. It can be difficult to achieve unconditional finality and frequently calls for a strong degree of centralisation or a unique consensus method.
State finality
In some blockchain systems, finality refers to the complete state of the blockchain, not just transactions. A state transition (a change in the blockchain’s state, such as a transaction or the execution of a smart contract) cannot be modified or reversed once it has been finished. For applications like smart contracts, where the accuracy of the entire application state is vital, achieving state finality is essential.
Finality’s importance
Finality in blockchain provides the necessary assurance of transaction validity and permanence, making it a foundational concept for the technology’s reliability and functionality.
Finality provides a high level of security and trust in the system, which makes sure that once a transaction is confirmed, it cannot be changed or reversed. By verifying that the transaction is legitimate and logged on the blockchain, finality prevents the issue of double spending, which is where the same digital asset can be used more than once.
Double spending might occur, for instance, if someone had one Bitcoin (BTC) and attempted to transmit it in two separate transactions to two different receivers. By guaranteeing finality, blockchain technology prevents this from happening. Once a transaction is confirmed and recorded on the blockchain, the digital asset is deemed spent and cannot be used in any further transactions.
Finality is crucial in the context of smart contracts. The details of the agreement between the buyer and seller are directly embedded in smart contracts, which are self-executing code. Finality guarantees that these contracts’ outcomes are deterministic and unalterable.
Additionally, finality is how decentralised applications (DApps) make sure their activities are safe and trustworthy. Finality ensures that decisions and transactions made within these applications are unchangeable and irreversible. Moreover, the blockchain develops trust among the network’s users and members by making transactions final. Users’ trust in the system is increased by knowing that transactions are irreversible.
