What is Finality in Blockchain?
A blockchain is a digital ledger that has the ability to store secured and verified digital transactions. On the other hand, the blockchain network stores the information on distributed nodes making it decentralized.
Blockchain ensures individual autonomy and works outside of the centralized network but once a transaction on a blockchain is finalized it cannot be undone, edited, or changed. This is called blockchain finality. This mechanism incorporates authenticity and security into the concept.
How does Finality Work?
Finality is part of the consensus model on a blockchain which is used to verify transactions on the network.
Different types of blockchain networks have a multitude of consensus mechanisms with each bringing various methods of validating transactions and executing finality. Two of the most popular BFT consensus models are PoW and PoS.
Types of Finality in Blockchains
Here are the types of finality protocols in different blockchain networks mentioned as under:
Bitcoin blockchain is known for its immutability but the finality protocol in its PoW consensus model is probabilistic.
It means that the possibility of reversing a transaction reduces considerably when blocks are stacked on a verified transaction once it this verified transaction has been added to a block.
The economic finality is found in PoS consensus models. It is a type of finality where reversing a transaction is economically unviable.
It is because in PoS validators and nodes have staked a given amount of cryptocurrency reserves as warranty. Therefore, acting in a malicious manner poses the risk of losing their staked holdings.
Ripple has published blockchains that have instant finality. It means that once a transaction has been recorded on the network it is instantly verified and irreversible. Transactions are verified by a network of 150 validators.
When a verified transaction is added to the blockchain is considered to be unconditionally finalized. Such that under no conditions this transaction is going to be undone. However, it is difficult to have unconditional finality and it requires a strong centralized and standalone consensus model.
There are some blockchains where finality stands for completion of a blockchain state rather than just transactions. In this manner, the state transition indicates transition in the status of a blockchain such as executions taking place on a smart contract.
These transactions are not reversed or modified once they are completed. Finality is vital for smart contracts to ensure that accuracy of the entire application.
Why is Finality Necessary for Blockchains?
Finality is important for a blockchain ecosystem on account of the following reasons:
Assurance of transaction validity and permanence, which is fundamental to reliability and functionality.
Finality incorporates a high level of security and trust in the blockchain ecosystems by ensuring that once a transaction has been verified it cannot be changed or reversed.
Blockchains run a risk of double spending on account of hash distribution events such as 51% attacks. Therefore, blockchain infrastructure ensures that once a transaction is added to the block it cannot be edited.
Smart contracts are automated protocols that become deterministic and unalterable on account of finality.
Finality also ensures that activities on decentralized applications are safe and trustworthy.
Finality ensures trust among blockchain investors and other stakeholders. The participants in the blockchain network are assured that transactions on the blockchain cannot be altered or changed.
Techniques to Enhance Finality
Here are some methods that blockchains employ to enhance finality in their networks:
Algorand uses a combination of Byzantine agreement with PoS to implement quick and irreversible finality for their transactions.
Blockchains can also use a reputation-backed network where small group of trusted delegates are allowed to validate transactions such as delegated PoS consensus.
Blockchain networks may also incorporate a multitude of verification techniques where each transaction is checked by a host of validators and nodes to ensure security. This system removes the probability of errors and ensures wider consensus aided by finality.
Another method used by blockchains is incorporating a longer confirmation time to ensure a greater number of validations for each transaction. In this situation, the probability of each transaction for confirmation and irreversibility is added to the amount of time it takes to reach a consensus.
Finality is part of the immutability is an additional layer of security for the ecosystem. Developers are working on new protocols such as zero knowledge (ZK) proofs and other innovative techniques such as sharding to ensure privacy and improve efficiency for blockchain transactions.