The Good Tech Companies - Educational Byte: What Is Transaction Finality in Crypto, and Why Does It Matter?

Episode Date: November 15, 2024

This story was originally published on HackerNoon at: https://hackernoon.com/educational-byte-what-is-transaction-finality-in-crypto-and-why-does-it-matter. Transaction finality in crypto refers to the point at which a transaction is considered irreversible on the network, but there's more. Let's find out! Check more stories related to web3 at: https://hackernoon.com/c/web3. You can also check exclusive content about #crypto-transactions, #double-spending, #bitcoin-transactions, #crypto-transaction-finality, #deterministic-finality, #probabilistic-finality, #obyte, #good-company, and more. This story was written by: @obyte. Learn more about this writer by checking @obyte's about page, and for more stories, please visit hackernoon.com. Transaction finality in crypto ensures irreversible transactions, critical for preventing double-spending and ensuring trust in digital exchanges, smart contracts, and DApps. While deterministic finality provides absolute certainty, probabilistic finality grows secure over time. Obyte uses DAG technology to achieve stable, irreversible transactions efficiently.

This audio is presented by Hacker Noon, where anyone can learn anything about any technology. Educational Byte What is transaction finality in crypto, and why does it matter, by Obite? Most online transactions, in fiat and crypto alike, go through their own process and the background between sending and approval. In traditional banking systems, a transaction is considered final once it's fully processed by all involved financial institutions, and yet, it still can be reversed for any reason. This doesn't happen with most cryptocurrencies, where transactions aim to be immutable. Transaction finality in crypto

refers to the point at which a transaction is considered permanent and irreversible on the network. Once a transaction reaches finality, it cannot be undone or changed, ensuring that the funds are with the intended recipient or the data involved is undoubtedly on-chain. This assures users that they can safely spend the received funds. Of course, not all cryptos are built the same, and they all have different mechanisms to reach their own level of transaction finality. Deterministic vs. Probabilistic You'll likely find several types of transaction finality. Deterministic versus probabilistic. You'll likely find several types of transaction finality in crypto, but they could be reduced to deterministic or probabilistic.

Deterministic finality ensures that once a transaction is confirmed or stable, it is final and irreversible. Platforms like Obite or some proof-of-stake, POS, networks offer this type of finality, where their internal mechanisms make it impossible for a confirmed transaction to be undone, providing a higher level of security and certainty for users. In contrast, probabilistic finality occurs when a transaction becomes more secure over time but could theoretically be reversed, especially shortly after it was broadcast to the network. For instance, in Bitcoin, a transaction with just one confirmation is less secure than one with six confirmations. This is because, early on, there's a small chance

that a miner could create an alternative chain with enough mining power, effectively reversing the transaction. A practical example of this is a 51% attack, where an entity controlling the majority of the network's hashing power could rewrite recent blocks, potentially reversing or invalidating previous transactions. This scenario is unlikely, though, because the costs often exceed the potential reward. However, in theory, it's still possible to reverse transactions on probabilistic blockchains, especially if they're small. Finality matters. In the digital world, almost everything can be copied and pasted, and that was a problem in creating electronic money for many years. Cryptocurrencies brought their own cryptographic and decentralized system to prevent exactly that. Without finality,

someone could spend their crypto twice, double spending, undermining the entire system's integrity. By guaranteeing that once a transaction is confirmed, it's recorded permanently on the chain, finality eliminates this risk, creating a reliable framework for the exchange of digital assets. This is why transaction finality matters in the first place. In the field of smart contracts, finality also plays a critical role. Smart contracts are automated agreements that execute based on predefined conditions, and their outcomes rely on the immutability of their network, without middlemen. Finality ensures that once a smart contract executes, its results are permanent,

meaning the terms of the agreement are fulfilled without the possibility of reversal. This is essential for maintaining trust in smart contract-based applications, where the stakes are high, and participants need certainty that agreements will be honored. For decentralized applications, Dapp's transaction finality is key to maintaining the security and reliability of their operations. When users interact with Dapps, they need to know that their actions and transactions are irreversible once confirmed. Finality guarantees this, ensuring that the outcomes of DAP interactions are trustworthy. Stable transactions in Obite

Obite is a decentralized network that uses a directed acyclic graph DAG structure instead of a blockchain, allowing for more decentralization. Unlike blockchains, where a small group of block producers can dominate and even sensor transactions, Obite eliminates these central power structures. Its DAG model ensures that no single entity can control the network, creating a system where there aren't middlemen between transaction sending and transaction approval. In terms of transaction finality, Obite reaches deterministic finality once a transaction is deemed stable, meaning it cannot be reversed, ever. This ICE achieved by gradually building a main chain, MC, through transactions posted by order providers,

Ops, nodes with guiding transactions. As new transactions are added to the network, each user tracks their own current MC based on the latest transactions they have received. And while the recent part of the MC might change as new transactions are received, its old part, beyond some point, is stable, meaning that it will never change no matter what new transactions are received. This point is called the stability point. A transaction becomes final and irreversible once the stability point moves ahead of the transaction. This happens when enough weight from Ops IS placed on the older part of the MC and any competing branches lose their chances of redirecting that part of the MC. Therefore, after reaching the stability point, a transaction is considered fully confirmed and cannot be

reversed, ensuring deterministic finality, as opposed to the probabilistic one on some well-known blockchains, including Bitcoin. As a result, users can enjoy the benefits of a whole crypto ecosystem including smart contracts, decentralized finance, DeFi, apps, autonomous agents, ah, customized tokens, and more features, all with integrated deterministic finality. Ready to explore it? Info featured Vector Image by Vector Juice, Freepik. And thank you for listening to this Hackerernoon story, read by Artificial Intelligence. Visit hackernoon.com to read, write, learn and publish.