The Bitcoin blockchain is designed to be immutable and tamper-proof. It achieves this through a process called “probabilistic finality”, which ensures that once a transaction has been added to the blockchain, it cannot be altered or deleted.
What is probabilistic finality?
Probabilistic finality is a concept that refers to the idea that once a transaction has been added to the Bitcoin blockchain, it is extremely unlikely that it will be altered or deleted in the future. This is achieved through a combination of cryptographic techniques and network consensus mechanisms.
When a new transaction is added to the Bitcoin blockchain, it is verified by a network of nodes (also known as miners) that work together to validate and add new blocks to the chain. Each block contains a reference to the previous block, creating an unbroken chain of transactions. This chain is secured using cryptographic algorithms, which ensure that any attempt to alter a transaction would require an enormous amount of computational power and energy.
In addition, the Bitcoin network uses a consensus mechanism known as Proof of Work (PoW) to validate new transactions and add them to the blockchain. PoW requires miners to compete with each other to solve complex mathematical problems, which are used to verify transactions and create new blocks. This process ensures that only valid transactions are added to the blockchain, and that any attempt to alter a transaction would require an enormous amount of computational power and energy.
What doesn’t describe probabilistic finality?
Despite the strong security measures in place on the Bitcoin network, not all transactions are subject to probabilistic finality. There are a few situations where a transaction can be altered or deleted after it has been added to the blockchain.
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Double-spending: This occurs when a user tries to spend the same bitcoins twice. In order to prevent this, the Bitcoin network uses a mechanism known as “double-spend protection”, which ensures that once a transaction has been verified and added to the blockchain, it cannot be altered or deleted. However, in rare cases where a double-spend attempt is made before a transaction has been confirmed by the network, it may be possible for the transaction to be reversed or deleted.
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Hard fork: A hard fork is a change to the Bitcoin protocol that results in a permanent split of the network. In order to implement a hard fork, a majority of the network must agree on the changes, and this requires a consensus mechanism known as “miner activation”. If a hard fork is implemented, all transactions that were added to the old version of the blockchain may be invalidated or deleted, even if they had already been verified and added to the chain.
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Centralized exchanges: While Bitcoin transactions on the blockchain are subject to probabilistic finality, transactions made through centralized exchanges (such as Coinbase or Kraken) are not. These exchanges hold a large amount of bitcoin in their own wallets and can use that money to make trades with other users. If an exchange is hacked or goes bankrupt, it may be unable to return all of the bitcoin it holds, even if those transactions had already been verified and added to the blockchain.
