Meaning
Property of decentralized consensus mechanisms where the probability that a transaction will not be reversed increases as more blocks are added to the blockchain after it. Blockchains using proof of work rely on probabilistic settlement finality, in contrast to systems with instant deterministic finality. Users must wait for several block confirmations to achieve a level of assurance that meets their risk tolerance.
Ledger Architecture
Nodes continuously follow the longest or heaviest chain to resolve conflicting blocks. Since a longer chain can emerge at any moment, the historical record is never mathematically absolute. This continuous validation process means that a transaction is only practically finalized when the cost to reorganize the ledger exceeds the value of the transaction itself.
Consequently, the certainty of settlement is a function of time and computational effort.
Risk Assessment
Financial applications must establish specific waiting times before recognizing deposits as valid. Under probabilistic settlement finality, exchanges adjust their block confirmation requirements based on the historical frequency of chain reorganizations. Higher-value transfers demand more confirmations to protect the platform from double-spend attempts.
Economic Threshold
Security models calculate the cost of a block reorganization to define the point of practical finality. This boundary depends on the hash rate of the network.
