All blockchain consensus mechanisms depend on some kind of verification that certain value has been added to the blockchain.
This process is most popularly known as mining or staking.
If you trust the underlying consensus mechanism, then you know that the longest chain contains the most value added to the network. For example, in Bitcoin, in order to add a new block to the chain you must both satisfy the difficulty requirement and beat all other miners to it. Therefore, the longest Bitcoin chain always contains more proof of work than any other candidate chain.
This is an essential concept in order to understand why some websites require a certain number of block confirmations before committing a deposit.
We now get to the point of this article.
If the longest chain contains the most proof of work, then the more blocks are added to the tip, the more value is added onto the chain. If a second block is added to the previous tip of the chain where your transaction is located, it means the entire network has agreed upon 2 consensus contests. Every single miner around the globe had the entire block time to call fraud if they’d noticed anything wrong.
The more blocks are added after your transaction’s block, the more certainty you have that the TX will never get reversed.
Ideal Number of Confirmations?
There is no fixed number of confirmations that you should consider “safe”. It depends on several factors, most important of which being total network hash rate.
Some exchanges, like LocalBitcoins, require 3 Bitcoin block confirmations (~30 minutes). Others will process your TX after one confirmation. At recent network hash rates of over 120 exahashes per second, one Bitcoin block is practically impossible to defraud. The amount of work being deposited into each block consensus is astronomical and makes it intractable for anyone to try and subvert.
Despite the extremely high security of Bitcoin, other lesser known coins require more attention and a higher number of block confirmations before you consider a TX permanent.
For example, less than one month ago, Vertcoin suffered a 51% attack where one player was able to build the longest chain on his own. This indicates that Vertcoin requires a higher number of confirmations before a vendor should accept payments in $VTC.
Requiring a higher number of block confirmations also helps protect against unexpected forks.
For instance, after The DAO Ethereum fork in 2016, every payment made to the original ETH blockchain after block 1920000 (and before the payment system admins took notice) would have been reversed when they updated the Ethereum payment back-end. In some high volume exchanges this could cause millions of U$ in reversed transactions.
Such situations are unlikely to happen in top ranked cryptocurrencies. In fact the Ethereum fork raised questions about whether cryptocurrency theft should justify hard forks at all.
If enough block confirmations were required for Ethereum deposits on this hypothetical exchange, perhaps less transactions would be reversed after such an unexpected event.