Settlement

Settlement is the transaction or exchange of securities between two or more parties. Traditional settlement involves the physical movement of certificates, transfer forms, or checks. Traditional settlement provides finality to a transaction, but has an increased risk of theft, loss, or forgery.

Most settlements in modern financial systems are electronic settlements, typically taking place through an electronic funds transfer. Electronic settlement involves a direct settlement between participants, although if a non-participant is involved in the transaction, it will require a custodian to oversee the settlement. Unlike physical settlements, electronic settlements might not be final for days or weeks.

Bitcoin unites the finality of physical settlement with the convenience of digital assets. Like physical cash or gold, Bitcoin payments are settled with absolute finality once they are included on the blockchain. The finality and immutability of Bitcoin transactions are the main reason Satoshi Nakamoto referred to Bitcoin as a “peer-to-peer electronic cash system” in the Bitcoin whitepaper.