Ideally, once a transaction has been corectly processed in a financial system, the chance of it being reversed should be slim to none. However, this isn’t usually the case in traditional finance. Blockchain systems, on the other hand, seek to mitigate this discrepancy through block finality.
In this guide, you will learn what block finality is, how it works, and its implications for blockchain networks.
What Is Block Finality?
Block finality refers to irreversibility once a transaction has been confirmed and added to a block in a blockchain network. At this point, a transaction is deemed final and can no longer be altered.
This is the reason why transactions on the blockchain are permanent and why it is often referred to as immutable.
Block finality is crucial in blockchain consensus protocols but isn’t always immediate. Block finality and latency work parallel to each other in blockchain networks. This means a blockchain’s finality rate is strongly linked to its latency level, which measures the time between submitting a valid transaction and its eventual confirmation on-chain.
How Does Block Finality Work?
Block finality is achieved differently in proof-of-work (PoW) and proof-of-stake (PoS) networks.
In PoW chains like Bitcoin, block finality is achieved through a distributed consensus mechanism that uses the follow the “longest” chain rule. During mining, a miner may broadcast the same block simultaneously, leading to more than one chain.
At this point, the main chain will have split into different forks, making it difficult to determine the original one. In this scenario, both forks will continue to validate and add new blocks. However, once one of the chains validates a block before another, it becomes the longest chain.
The longest chain is then accepted as having the most valid blocks attached, while transactions mined on the shorter chains are discounted. However, transactions in the rejected chain are probably included in other blocks on the longer chain, achieving block finality.
Block finality in proof-of-stake (PoS) chains differ from one PoS implementation to another. For example, Casper FFG, an Ethereum PoS implementation, achieves finality by introducing validators to confirm the validity of the chain after every 100 blocks. A block is finalized after the approval of ⅔ of all validators.
Tendermint, used by the Cosmos network, achieves finality when any block receives more than ⅔ of the pre-votes and pre-commits. This continues in perpetuity unless ⅓ of all validators become unresponsive.
Types of Blockchain Finality
Four main types of blockchain finality are classified according to the levels of certainty and permanence. They include:
Probabilistic finality is simply chain-based finality. This is the probability that chances are low for a transaction to be reversed with more blocks added to a chain. Probabilistic finality is achieved when a transaction is in a block mined and included in the longest chain. Probabilistic finality is common in most PoW blockchains like Bitcoin.
Economic finality is where finality is achieved through financial incentives. The idea behind this is it becomes very expensive for anyone to revert transactions in such a blockchain network. Economic finality is closely tied to POS networks where validators must stake a certain amount of crypto as collateral. Any malicious action could lead them to lose their financial interest.
Absolute finality is the highest level of finality. In this system, once a transaction is broadcast on-chain, there is zero chance of it being tampered with or reversed. Blockchain protocols like Ripple and Stellar use federated consensus to achieve absolute finality. The federated consensus relies on trusted validators to confirm blocks and secure the network. Blockchain protocols like Cosmos and Algorand also use consensus mechanisms that help them achieve absolute finality.
Instant finality is when a transaction is broadcast to a network, instantaneously confirmed, and made irrevocable on-chain. Instant finality is hard to achieve and requires fundamental changes in how blockchains perform consensus and process transactions. That said, decentralized protocols like Shardeum provide almost instant finality with a high level of certainty.
How Does Finality Affect Blockchain Networks?
Blockchain finality is a foundational concept for blockchain’s reliability and stability. Finality assures transactional validity and irreversibility, thus preventing the issue of double-spending by recording the valid transaction on-chain. This way, the digital asset is considered spent and cannot be used again.
Finality is also necessary for the deployment of smart contracts. Smart contracts incorporate the agreement details between transacting parties in their self-executing code. Finality ensures the outcomes of these contracts are predictable and irrevocable.
Decentralized applications use finality to secure their operations and make them reliable. Users are assured that any actions taken with the DApps are safe and permanent.
Block finality is a cornerstone of blockchain technology and is essential for the success of crypto transactions. As blockchain technology evolves, achieving fast and secure finality will be essential for future developments.