How Cardano's EUTXO model unlocks blockchain's potential
Input Output (IOHK)
One of the world's pre-eminent blockchain infrastructure research and engineering companies.
The Unspent Transactions Output (UTXO) accounting model is a fundamental part of several blockchains including Bitcoin, however, it does present limitations, preventing blockchains from reaching their full potential. A UTXO blockchain’s users cannot access the various decentralized finance (DeFi) services enabled by complex smart contracts, for example.
Input Output Global (IOG) strives to build innovative, research-backed blockchain technology, including blockchain accounting models. Imagine a world where your digital transactions aren't just secure but also adaptable to complex agreements and conditions. Cardano's Extended Unspent Transaction Output (EUTXO) model is a groundbreaking leap beyond Bitcoin's original UTXO system, EUTXO isn't just an upgrade; it's a revolution that redefines a blockchain’s possibilities.
EUTXO enhances the blockchain by embedding data and scripts directly into transactions, opening the door to smart contracts. For the everyday crypto user, this means you're not just spending or receiving digital assets; you're engaging in a growing ecosystem of decentralized applications (DApps).
Read on to learn about how EUTXO unlocks blockchain’s potential.
What is UTXO?
Understanding EUTXO requires definition of what the 'basic' UTXO model is, and how it works. In UTXO accounting, transactions have inputs and outputs. Inputs refer to the outputs of previous transactions, and outputs specify ownership of new tokens. An output is 'unspent' if it isn't referenced by an input in a subsequent transaction, and it represents a spendable asset.
A UTXO is comparable to change in cash payments. Similar to how you can make up $50 with several combinations, such as two $20 bills and one $10, or four $10 bills and two $5 bills, a UTXO balance of 0.90 can be made of? 0.30, 0.40, and 0.20, for example. Regardless of combinations, the balance remains the same.
A brief comparison of UTXO and EUTXO
While both UTXO and EUTXO share the premise of tracking transactions through unspent outputs, the differences are profound. UTXO excels in simplicity and security, making it ideal for basic cryptocurrency transactions. This model does, however, fall short of supporting the intricate logic required by smart contracts and DApps.
Enter EUTXO, which builds upon its predecessor's strengths by integrating scripts plus additional data items. These enhancements facilitate complex smart contract design and enable a broader range of functionalities, from automated governance protocols to sophisticated financial instruments. Moreover, EUTXO enhances scalability and security, crucial aspects for blockchain's adoption.
The table below highlights the foundational differences between UTXO and EUTXO:
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Why Cardano uses the EUTXO model
Cardano’s use of the EUTXO model illustrates the blockchain's commitment to fostering a secure, scalable, and versatile blockchain platform. With EUTXO, Cardano addresses the limitations of traditional blockchain architectures, paving the way for a more robust and flexible ecosystem that can support a wide array of services and DApps, such as:
This model lays the foundation for Cardano’s scalability solutions including:
EUTXO's ability to handle complex transactions while maintaining the integrity and transparency of the blockchain is well suited for Cardano's vision of a decentralized future.
What's your take on this?
Share your thoughts and insights as IOG continues to delve into the possibilities unlocked by the EUTXO model. How do you see EUTXO influencing the future of blockchain applications? Comment below.
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