A subset of the Consensus Algorithm that dictates when a work done by a blockchain can be considered irreversible.
Initial blockchains like Bitcoin have no finality mechanism, and by convention, people assume that once a transaction is blocks deep in the canonical chain, it can be considered final. This is called “probabilistic finality”.
Many modern blockchains deploy a separate finality mechanism, which forces validators to vote and sign-off on blocks, and once enough subset of validators have voted, a block is considered final.
Finality has a number of useful use-cases:
- When two blockchains send messages to one another (see Bridges and Cross Chain Messaging), assuming they trust each other’s Consensus Algorithm and finality, they can consider the message as “sent and not reversible”, and act upon it.
- Centralized exchanges can use it to settle user deposits.
Note on Centralized Exchanges Ignoring Finality
An ironic note is that many blockchains have invested a lot of research and development into implementing strong and fast finality measures, yet no centralized exchanges that I know of uses it. Instead, even for blockchains with Finality mechanisms, they rely on “6 blocks confirmation” model from Bitcoin-style blockchains with probabilistic finality.