- 1 Zero-confirmation/ unconfirmed transactions occur in the blockchain network.
- 2 Risks are associated with zero confirmation transactions.
A zero-confirmation (short form “0-conf”) or unconfirmed transaction refers to a type of exchange that, although broadcast to the network, has still not been verified or included in a block on the chain. Zero-confirmation transactions get stored in the memory pool of transactions (mempool) of the nodes in the event that these transactions are not published in a block or confirmed by other network participants. Since these transactions are not confirmed on the blockchain, they are considered invalid and can be reversed.
What Are Zero Confirmation Transactions?
When a transaction is initiated on a blockchain (a decentralized ledger system composed of a sequence of blocks), it reaches every single node that collectively maintains the integrity of the network. These nodes (or miners), in exchange for rewards, compete for the right to validate and include that transaction in the global ledger.
As soon as the network’s nodes register and verify the data and include it in a block, the transaction is considered to have one confirmation. Generally, the transaction gets a green flag of verification when it receives at least six confirmations. Zero-confirmation transactions are transactions that are not confirmed by the network’s miners, and therefore, are not yet part of the blockchain.
It is worth noting that the confirmation time of the transactions is dictated by the volume of transactions on the given blockchain network. If there is a surge in the transaction volume, then, it is plausible that the transaction might not be added to the next available minted block since there is a limitation on the size of each block in the blockchain network.
Due to the lack of confirmation from the network, zero-confirmation transactions are deemed less secure as compared to the ones with one or more confirmations. However, zero confirmation transactions are still the preferred choice of some traders and exchanges for faster payments of low-value and smaller amount transactions.
Risks of Zero Confirmation Transactions
Since zero-confirmation transactions are not confirmed by the blockchain network, they are quite prone to double-spending attacks. When stored in the mempool of the nodes, the digital assets of the zero-confirmation transactions can be attacked and broadcasted on the blockchain network as a conflicting transaction. If this double transaction gets picked up by a miner and included in a block before the original one, it can effectively reverse the transaction.
Another major issue that arises with zero-confirmation transactions is network instability. Since the processing of Bitcoin and other cryptocurrency transactions relies on a decentralized blockchain network, any problems capable of causing instability in the network (for example, increased traffic and technical issues) can lead to slow or even failed transactions.
Lack of transaction can be considered an additional risk of zero-confirmation transactions. The reversal of confirmed transactions in a blockchain cannot be performed unless both parties consent to it. However, due to the absence of any confirmation and finality in zero-confirmation transactions, users could opt to reverse those transactions, which can ultimately lead to double spending.
With the advantage of fast propagation through the network, zero-confirmation transactions are potentially used for fast cryptocurrency payments. But the users and merchants should also keep the aforementioned dangers and risks in mind. Needless to say, proper precautions and security measures need to be followed to escape the potential dangers of zero-confirmation transactions.
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