Confirmations

Understanding Confirmations

Confirmations are of utmost importance in the realm of cryptocurrencies. Unlike traditional financial systems, cryptocurrencies operate without the need for a central authority to facilitate transactions. Instead, transactions are processed by the entire network, specifically by miners. These miners gather new transactions and secure them using the proof-of-work algorithm, subsequently adding them to the blockchain.

Prior to being recorded on the blockchain, a transaction must be acknowledged by the network. Transactions that have been requested by users but have not yet been included in a new block are referred to as unconfirmed. These unconfirmed transactions are stored in the mempool, which essentially acts as a backlog for all currently unconfirmed transactions.

Once an unconfirmed transaction is included in a newly mined block, it receives a confirmation and becomes confirmed. Furthermore, each subsequent block added to the blockchain serves as an additional confirmation for that particular transaction. For instance, if a transaction was confirmed in block number 656307 and the current block height is 656312, it has accumulated six confirmations.

The number of confirmations holds great significance in terms of security. In the event that a hacker attempts to attack the blockchain by introducing false transaction data, they would need to compromise the security of each individual block in sequential order, starting from the latest block in the chain. The more blocks that have been mined since a specific transaction took place, the more challenging it becomes for a hacker to compromise all of them and reverse the transaction.

Due to this security concern, most crypto businesses that handle customer transactions, such as wallets and exchanges, have a policy requiring a minimum of three confirmations (or more, depending on their specific policy) before considering a transaction as valid and irreversible.