Author: Dilip Kumar Patairya, Cointelegraph; Translated by: Song Xue, Golden Finance
1. Understanding the finality of blockchain
In traditional financial systems, once a transaction is confirmed, it cannot be reversed. Similarly, achieving finality on a blockchain network ensures that transactions are permanent and cannot be modified after being added to the blockchain. This concept is crucial in order to keep the blockchain secure and authentic.
Finality is achieved through the use of consensus by the blockchain network. Different blockchain networks use different consensus algorithms, each with a unique approach to verifying transactions and ensuring finality, such as Proof of Work (PoW), Proof of Stake (PoS), or Practical Byzantine Fault Tolerance.
Types of Finality in Blockchain
Finality in a blockchain can be probabilistic, economic, immediate, unconditional, or relative to the entire state of the blockchain.
There are multiple types of finality on the blockchain, each describing a different degree of certainty and irreversibility of transactions and blocks. The main types of finality on the blockchain are as follows:
Probabilistic Finality
Finality is probabilistic in most blockchain systems, especially those that use PoW consensus, such as Bitcoin. Once a confirmed transaction is included in a block, the probability of reversing the transaction decreases exponentially when a block is placed on top of the confirmed transaction.
Economic Finality
The concept of economic finality is often associated with PoS systems. From an economic finality perspective, a transaction is considered final and would become financially unfeasible if attempted to be reversed. In PoS, validators or nodes are required to post a certain amount of cryptocurrency as collateral. If they approve a false transaction, they risk losing their stake, making malicious behavior economically unjustifiable.
Instant Certainty
The Ripple network provides near-instant finality, ensuring that once a transaction is recorded on the ledger, it is immediately confirmed and irreversible. Transactions are verified by 150 validators. These validators have the potential to win a spot on Ripple's unique node list, which consists of 35 validators.
Unconditional Certainty
Once a transaction is confirmed, it is considered fully and unconditionally final. The transaction cannot be reversed under any circumstances. Achieving unconditional finality can be difficult and often requires highly centralized or unique consensus methods.
State determinism
In some blockchain systems, finality refers to the complete state of the blockchain, not just the transactions. State transitions (changes in the state of the blockchain, such as the execution of a transaction or smart contract) cannot be modified or reversed once completed. For applications like smart contracts, the accuracy of the entire application state is critical, and achieving state finality is essential.
Why finality is important in blockchain
Blockchain finality provides the necessary guarantees for the validity and durability of transactions, making it a fundamental concept for the reliability and functionality of the technology.
Finality provides a high level of security and trust to the system, ensuring that once a transaction is confirmed, it cannot be changed or reversed. By verifying that the transaction is legitimate and recorded on the blockchain, finality prevents the double-spending problem, where the same digital asset can be used multiple times.
For example, if someone owns one Bitcoin (BTC) and attempts to transfer it to two different recipients in two separate transactions, a double spend could occur. Blockchain technology prevents this from happening by guaranteeing finality. Once a transaction is confirmed and recorded on the blockchain, the digital asset is considered spent and cannot be used for any further transactions.
In the context of smart contracts, finality is critical. The details of the agreement between the buyer and seller are embedded directly in the smart contract, which is a piece of code that executes itself. Finality guarantees that the outcome of these contracts is deterministic and unchangeable.
Furthermore, finality is a way for decentralized applications (DApps) to ensure that their activities are secure and trustworthy. Finality ensures that decisions and transactions made in these applications are immutable and irreversible. Furthermore, blockchain builds trust among network users and members by making transactions final. By knowing that transactions are irreversible, users’ trust in the system increases.
4. Challenges of achieving blockchain finality
Issues such as forks, network latency, smart contract vulnerabilities, and 51% attacks hinder the finality of blockchain transactions.
A fork occurs when a blockchain splits into multiple paths, producing different versions of transaction history. Consensus methods are tested by such disagreements, making it challenging to determine which version is legitimate.
For example, a hard fork could be caused by a disagreement between the community or developers over a protocol update. Until the issue is resolved, different factions may continue to support the PoW blockchain, resulting in a lack of finality.
The problem is compounded by network latency, or the delay in communicating data between nodes. Slow network connections can delay the propagation of transaction information across a blockchain network, leading to errors in transaction order and verification.
Additionally, vulnerabilities in smart contracts can lead to unexpected behavior, allowing bad actors to exploit it and reverse transactions. Similarly, an entity with more than 50% of the network mining power in a PoW blockchain could change the history of the blockchain and reverse transactions. This undermines finality and security.
Due to these concerns, the integrity of the blockchain is compromised and developers need to implement strong consensus algorithms and efficient network protocols to reduce forks and latency issues and guarantee timely and secure finality of transactions.
5. Technologies and consensus algorithms to enhance finality
Longer confirmation periods, multi-validation, and cutting-edge security algorithms, such as Algorand’s Pure PoS, Delegated PoS (DPoS), and HoneyBadgerBFT, may help enhance blockchain finality.
One approach involves longer confirmation times, allowing for more verification before a transaction is considered final. By extending the time required to reach consensus, the likelihood that a transaction’s validity is confirmed and becomes irreversible increases significantly.
Additionally, the use of multi-confirmation technology (transactions are checked by multiple nodes or validators) provides an additional layer of security, ensuring a wider consensus and reducing the possibility of errors or malicious attacks.
In addition, Algorand's innovative consensus algorithms such as Pure PoS, DPoS, and HoneyBadgerBFT have changed the industry. Algorand uses the PoS method combined with the Byzantine Agreement to ensure that transactions have fast and irreversible finality.
By implementing a reputation-based system where a small group of trusted delegates validate transactions, DPoS improves the validity and finality of the network. Similarly, the HoneyBadgerBFT algorithm improves finality and security by implementing asynchronous Byzantine consensus, even in the presence of malicious nodes or network delays.
VI. Future trends and developments to achieve faster and more reliable end results
Essentially, a multidisciplinary strategy combining different consensus technologies, cutting-edge cryptography, and improved interoperability is needed to achieve faster and more reliable finality in the future.
The exposure of hybrid consensus models is one such trend. These hybrid consensus algorithms strive to improve scalability and performance while maintaining strong security by combining the advantages of various consensus algorithms. Projects have been trying to incorporate PoS methods because they consume much less energy than PoW technology and can speed up confirmation times.
In addition, there is growing interest in advanced cryptographic methods such as zero-knowledge (ZK) proofs and innovative technologies such as sharding. Zero-knowledge proofs enable parties to verify transactions without revealing private information, thereby improving efficiency and privacy. Sharding is a method of dividing a blockchain into smaller, more manageable parts, which can reduce the computational burden on nodes and speed up transaction processing.
The development of quantum computing could render existing cryptographic techniques obsolete, necessitating the creation of quantum-resistant algorithms. In order to maintain the security and finality of transactions in the face of quantum threats, blockchain networks are actively researching quantum-resistant cryptographic solutions.
Another area of focus is how different blockchains interact with each other. By using protocols such as Polkadot and Cosmos, transactions between networks can be completed quickly and seamlessly. This interoperability improves the overall effectiveness of blockchain systems, resulting in faster and more trustworthy finality.