Achieving true final settlement in Bitcoin

The following is a guest post from Shane Neagle, Editor In Chief from The Tokenist.

In the digital age, financial privacy has become a pressing issue because surveillance is ingrained in all electronic transactions. Each one generates bits that can be aggregated, stored, revisited, abused, funneled and manipulated. Theoretically, 4th and 5th amendments of the U.S. Constitution provide a bulwark against 3rd party transaction interception.

But a rule written on a piece of paper is only as relevant as there is will to interpret it or enforce it. A more robust solution must come from a hard technological source. Alongside fixed scarcity to 21 million BTC, the underlying draw of Bitcoin is that its network makes transactions inviolable. 

Bitcoin mainnet achieves this through escalating confirmations. The first confirmation means that a transaction is included in the blockchain’s block. All subsequent blocks added embed the transaction further into the chain. By the sixth confirmation, a would-be attacker would have to mine 6 consecutive blocks faster than the rest of the Bitcoin mainnet combined.

At this point in time, the energy expenditure (hashrate) necessary for such a feat makes this virtually impossible. This is also the reason why Bitcoin’s proof-of-work is so integral to the underlying value of Bitcoin vs proof-of-stake that is so pushed by Greenpeace. 

The rule of 6 confirmations therefore became the de facto standard among developers, miners and exchanges. After that 6th confirmation threshold, a BTC transfer is deemed as “final settlement”, or irreversible.

But is a transaction genuinely irreversible if it is not private, therefore vulnerable to seizure by either governments or criminals? First, let’s examine what Bitcoin settlement entails.

Understanding Final Settlement in Bitcoin

Satoshi Nakamoto’s peer-to-peer money transfer system revolves around proof-of-work. Truly revolutionary, it makes it possible for a payment system to work by itself. In other words, to be trusted because it is trustless. From initiating a transaction to making the transaction irreversible, the final settlement process follows multiple steps:

• When a user initiates a BTC transaction, it is broadcasted to the Bitcoin network (mainnet) and added in the mempool.
• Bitcoin miners constitute the network, as they form a new block containing mempool transactions. Each such block references a prior block, forming a blockchain, and a nonce (number used once) as a 32-bit…