Explain the Difference between a ‘UTXO’ and an ‘Account-Based’ Model.
Bitcoin uses the Unspent Transaction Output (UTXO) model, where a user's balance is the sum of all unspent transaction outputs associated with their addresses. Transactions consume old UTXOs and create new ones.
Ethereum uses an account-based model, similar to a traditional bank, where the state maintains a global ledger of all accounts and their current balances. The UTXO model offers better privacy and parallel processing, while the account model is simpler for smart contract execution.
Glossar
UTXO
Model ⎊ UTXO, or Unspent Transaction Output, represents the accounting model used by Bitcoin and other similar blockchains.
Utxo Model
Architecture ⎊ The Unspent Transaction Output (UTXO) model represents a distinct approach to tracking cryptocurrency ownership, differing fundamentally from account-based systems.
Unspent Transaction Outputs
Provenance ⎊ Unspent Transaction Outputs represent the available balance originating from prior blockchain transactions, crucial for validating new transactions and preventing double-spending within a distributed ledger system.
Account Model
Allocation ⎊ An account model within cryptocurrency, options, and derivatives fundamentally dictates the strategic distribution of capital across varied instruments, optimizing for risk-adjusted returns.