Randy asked a great question in regard to The Longest Chain Rule & Forks. Over the last few posts, we’ve established that Consensus Methods are not as worried about “verifying” transaction but are more concerned with the “ordering” of transaction. When a fork occurs – we have a dispute in the correct ordering. The Longest Chain Rule kicks in and will fix that dispute for us. Awesome! Hope that is clear. If not, I suggest you read through the posts linked above!
Today, its Cassidy’s turn to ask a great question!
“ What happens if I send a transaction that ends up in an orphaned block? Do I lose my BTC or ETH ??“
Ah, this is such a great question! Because it brings us one step closer to understanding the 51% Attack and Double Spends.
Cassidy is concerned about losing her BTC – and understandably so. She’s always trusted the bitcoin blockchain, but now I’m telling her that her transaction may end up on an “orphaned chain”.
Does this mean that her transaction is in peril too? And does that, in turn, mean that she may lose her BTC?
No, not at all. Her BTC is safe – and so is her transaction. She will not lose any BTC and her transaction will go through regardless of the fork.
Orphaned Blocks - The Key is in your Wallet....
A common misconception is that people tend to believe that their BTC or ETH is stored “within” their Wallet. So, when they send a transaction – there is a belief that they are taking out some BTC (or ETH) and putting it in someone else’s wallet.
This is completely untrue. But I don’t blame people for thinking that way. The term “wallet” is probably what confuses people. The term “wallet” was probably used to help user adoption, but it’s made explaining the technology even more difficult.
Your Bitcoin or Ethereum Wallet is not like your traditional wallet. It does not hold any of your funds.
Instead, your wallet holds the keys to access your funds. Your funds are located on the blockchain – and will always be there. Your keys allow you to say to the blockchain “I have the right to spend these funds”
Don’t think of your Wallet as something that holds your BTC or ETH – but more so as something that holds the keys to access your funds.
Your keys allow you to say to the blockchain, “I have the right to spend these funds”
Orphaned Block - Does Cassidy Lose Her Funds?!
Okay, so now we understand that our funds are not really located in our wallet – but on the blockchain. In particular, our funds are located in the current valid Longest Chain! Afterall, the Longest Chain is what represents the blockchain.
(You’re probably having a “Oooh, I see where this is going” moment about now)
Let’s suppose a fork happens, and Cassidy doesn’t know about it. No big deal.
Remember – her funds are on the chain! And a fork splits the chain into two! So after the fork, her funds will exist on both chains. Let’s illustrate with some diagrams!
In the above illustration, Cassidy has 10 BTC up until Block A.
She then sends 10 BTC to Tom. The chain forked, and her transaction ended up on Block B2.
Block B and Block B2 are now both in contention to win the Longest Chain Rule. Another block (Block C) gets added – but it gets added behind Block B.
In the above illustration, Block C gets added behind Block B
Oops, looks like Block B wins with the Longest Chain Rule. So Block B2 gets orphaned.
The transaction that Cassidy sent to Tom gets “orphaned” as well. But Block A still exists – so Cassidy still has her 10 BTC in the Main Chain (longest chain)
In the above illustration, Cassidy still has 10 BTC in Block A
Does Cassidy have to RESEND her funds to Tom?
Why? -- Because when a block gets orphaned, which in our case is Block B2, all the transactions in block B2 simply go back in the queue and wait to be added to the next block. Cassidy’s transaction will most likely get added in the next block.
In the above illustration, Cassidy's transaction to Tom will be put in queue, and will likely be added to Block D
Concluding Thoughts
I tried to keep this one short and simple. Believe me, I removed a lot of text that went into more detail. But I think this is more than enough to give you guys the core idea of what’s going on. The nitty-gritty stuff can wait for later!
The key point to remember is that your funds exist on the chain. A fork would entail you now have funds on two chains. But only the chain that ends up being the Longest Chain will be the one that matters! (Yes, the longest chain rule is that important!)
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