However, in the decentralized finance system of blockchain, there are no banks involved. So, how do users confirm the successful completion of their transactions? That's where the concept of blockchain confirmation comes into play, which is the focus of this article.
What is a Blockchain Confirmation?
Blockchain confirmations provide assurance to users that their transactions made on blockchain networks have been securely recorded. When a transaction is initiated on a blockchain network, such as sending coins from one digital wallet to another, it must be recorded on the network's digital ledger. This ledger, consisting of digital blocks linked in a chronological chain, is immutable and known as a "blockchain."
Once recorded, transactions are validated through a process called consensus, carried out by miners on the network. Miners use a Proof of Work algorithm to validate transactions and secure the network, receiving new coins as a reward.
However, even with consensus validation, a transaction may still be subject to rejection and reversal by the network. This is because a malicious user could attempt to make duplicates of the transaction, making it appear as though the original never occurred. In such cases, the network can examine its own ledger to reverse the transaction.
That's where blockchain confirmations come in handy. Simply put, a blockchain confirmation is the number of times another block or transaction is recorded chronologically after the block containing your transaction.
For example, if your transaction is recorded on block 1, a new block containing additional transactions will soon be added, making it block 2. And if a malicious actor were to try to reverse or corrupt your transaction, they would not only have to decrypt the encrypted data on block 1 but also all subsequent blocks, as they are all linked together in a chain. With each additional block added after your transaction, your transaction becomes less vulnerable to reversal and more secure.
In essence, if you make a transaction on a block, each subsequent block represents a confirmation. For example, if there are three blocks added after the block containing your transaction, it would have three blockchain confirmations.
Blockchain Confirmation and Security
When it comes to financial applications of blockchain technology, most cryptocurrency exchanges, wallets, and networks require a minimum of 3 confirmations to confirm that a transaction has been successfully executed and recorded in the blockchain ledger.
The number of confirmations required can vary depending on the security protocols of each blockchain network, but it is largely based on the size of the transaction being made. For instance, the Bitcoin blockchain requires 1 confirmation for transactions under $1,000 USD, while transactions over $1,000,000 USD require 6 confirmations.
On average, it takes about 10 minutes for a new block to be created on the Bitcoin blockchain, so a transaction should be secure and irreversible after an hour.
While early blockchains like Bitcoin aimed to provide a more efficient alternative to traditional financial networks, their confirmation speeds are still relatively slow compared to modern financial systems. For example, Bitcoin could only process 3-7 transactions per second at the start of 2018, and Ethereum was limited to around 30 transactions per second.
The slow confirmation speed of blockchains is not a result of blockchain confirmations, but rather the data storage waste caused by Proof of Work. In Proof of Work, all nodes have access to all data on the blockchain, which can be inefficient.
However, newer consensus mechanisms, such as Proof of Stake, use database sharding techniques to break down the blockchain into smaller parts across multiple nodes, allowing validators to pool their resources to access the entire blockchain if necessary, while individual users are not required to store all of the blockchain data.
The Bottom Line
Blockchain confirmations play a crucial role in maintaining the integrity of decentralized finance transactions. Without confirmations, it would be impossible to verify the successful completion and permanent record of a transfer on the digital ledger. This would result in a lack of trust and stability, potentially leading to the decline of the entire blockchain network.
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