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I'm interested in the exact method the wallet uses to determine if a transaction is confirmed or not (e.g. the number of references that a node has or a coordinator milestone).

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    The relationship between confirmation and milestones is still unclear in the current implementation. While the confirmation process still depends on the Coordinator, milestones are not necessary the indicator of valid transactions. – tawago Jan 4 '18 at 17:36
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tl;tr With wallet 2.5.6 and IRI 1.4.1.4 : a transaction is confirmed if and only if it is confirmed by a milestone.

To check the confirmation status of a transaction, the light wallet call the getInclusionStates api call.

More precisely, the wallet will do that in 2 steps :

  1. ask to the full node it's latest solid milestone index (API GetNodeInfo). Let's call this index : latest_solid_milestone_index_request
  2. ask the inclusion-state of the transaction regarding this latest_solid_milestone_index_request. Or in other words : "is this transaction approved directly or indirectly by this milestone ?"

On the full node, to respond to the InclusionState request, the IRI-1.4.1.4 will just check if

  1. the transaction is confirmed by a solid milestone
  2. this solid milestone index is > latest_solid_milestone_index_request.

If those 2 conditions are met, the transaction is 'confirmed'.

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