The Meaning of Finality in Ethereum Classic

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What Is Finality?

Finality means that something has come to an end irreversibly and permanently.

In the context of a blockchain as Ethereum Classic (ETC), finality is the moment at which transferred funds become the physical possession of the receiving party, therefore the receiver has irreversible and permanent control over the funds.

This quality has been the subject of analysis in economics and legal circles for centuries. It is imperative for the health of a society for economic transactions to become final in order to bring assurance to economic agents that they can carry on with their continued business, thus general prosperity. The goal of finality is certainty.

Imagine a chain of many business payments where one in the middle is reversed or corrupted. If this were to happen, then probably all the transactions that came after it would need to be reversed as well, significantly disrupting the economy.

Finality in the blockchain industry has been the subject of debate, but many confuse the different types of finality leading some to believe that insecure systems as proof of stake chains are final when, in reality, they are not.

Physical Finality

Because Ethereum Classic is a proof of work blockchain it offers physical finality. Physical finality means that once a payment becomes final it is practically impossible to physically reverse it.

ETC provides these guarantees because the proof of work consensus mechanism enables all participating machines to achieve consensus on a single history of transactions in a truly decentralized and permissionless way.

This enables the full replication of the ledger with the addresses and balances while at the same time providing a computational barrier to the reversal of payments as all of the computational work and expenditure of energy would have to be done again in order to reverse single transactions.

For these reasons, ETC’s proof of work makes it possible to achieve finality with a very high level of security, thus certainty.

This level of security and decentralization guarantees access, possession, and absolute control of ETC inside the blockchain so long as users have their private keys.

Legal Finality

In traditional systems, because they may be reversed at a very low cost and with hardly any barriers, finality must be given by legal means. This is the key difference with proof of work blockchains.

Legal finality provides much less certainty than physical finality.

Physical finality is more absolute than legal finality because, regardless of what the law says, whoever controls ETC in an address with their private keys is the only one who may move them.

In traditional systems, the great majority of people have their money in banks. Actually, this money is a debt the banks have with their depositors. The money is not in their possession. If for any reason there are arbitrary government decisions to reverse transactions through banks or declare national confiscations of funds, those funds are extremely vulnerable and may be removed from their rightful owners.

On blockchains as ETC, whatever the government determines does not change the fact that only the users with the private keys can dispose of their money.

This is a big deterrence and form of prevention against tyrannical behavior and legalized theft.

Physical vs Legal Finality

However, it is very important to note that, in normal circumstances, both physical and legal finality are desirable.

It is perfectly possible that a person may have ETC in their address, but they are not the rightful owners. For example hackers may steal ETC by hacking systems, people may accidentally lose their private keys to strangers who take control of them, or an inheritance may be challenged where someone may have to transfer funds to someone else.

The legal process will always be a necessary system to resolve disputes between humans.

However, the blockchain is blind to whatever happens between people or in the legal system. As long as transactions are sent and signed with the correct private keys, ETC will always execute them and make them final after a certain number of confirmations.

This is a great way of reducing the frequently unfair and arbitrary treatment of people’s money and guaranteeing that only through proper and fair legal procedure things will be restored and resolved, not through abrupt and erratic means.

Social Finality

One of the most egregious fallacies promoted in the blockchain industry is that proof of stake systems having what is called “social consensus”, a community ethic, as its security of last resort is somehow a better guarantee than physical finality.

This can’t be further from the truth because both legal and social finality have the same source of enforcement: People and their subjective opinions.

Proof of stake ledgers are as cheaply malleable as traditional ledgers. On top of this, stakers, staking pools, and validators are static, easy to track players in these systems. This makes them practically identical to traditional systems as authorities can easily force them to reverse transactions or confiscate funds. There is no deterrence to legal theft or abuse.

Physical finality is not related to law, personal opinions, or any sense of fairness or unfairness, for that matter. It is just an objective and neutral barrier that guarantees that transfers are final by sheer force and energy. Only through private keys may funds be moved.

Finality vs Immutability

Finality is not immutability, but immutability does enable finality.

It is important to note that proof of work blockchains as ETC guarantee finality, a quality of certainty, because transactions become immutable after a certain number of confirmations.

When one receives funds, one should wait several confirmations to have more certainty that the transaction will not be physically reversed with a 51% attack. After this number of confirmations, then one may consider a transfer immutable, thus final.

Immutability is a physical quality, finality is an economic and legal quality. Again, one may receive a transfer by mistake or steal money, and that transaction will have physical finality after a number of confirmations, but that does not mean legal finality.

Also, finality is not really an end per se as one may transfer those funds again to continue the chain of events in an economy and human action.

Conclusion

Contrary to what proof of stake advocates say, humans, whether lawyers or computer scientists, are not good sources of finality.

This is why our bank deposits, guaranteed by the law and technology, are subject to high degrees of uncertainty because they can always be removed at the stroke of a pen or by pressing a key on a keyboard.

Physical finality is not an abstraction or rule that people may choose to follow. Physical finality is absolute. Proof of work chains, after a certain number of confirmations, offer a higher degree of finality, whether corresponding to law or not, with sheer force.

However, a combination of legal and physical finality may very well be the best balance so that human action may be enhanced and promoted by increasing certainty, reducing abuse, and incentivizing positive and healthy economic prosperity.

Thank you for reading this article!

To learn more about ETC please go to: https://ethereumclassic.org