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Cardano’s eUTxO is For Decentralized Networks, Not Multichain

Why Cardano’s eUTxO model is for decentralization and Ethereum’s favours big banks

[A Thread 🧵]

Cardano CardanoADA ADA Cryptos

DISCLAIMER

I’m tired of the shit flinging between different blockchains. Getting worked up over this is like kids getting angry because someone bought an Xbox instead of a PlayStation.

The future is likely multichain, and won’t depend on individuals getting angry on Twitter.

1/ Intro

There are two main ways in which blockchains process transactions:

Account-based model: can be found on ETH & many others - UTxO (Unspent Transaction Output): can be found in BTC, ADA & a few more

Both have their programming quirks affecting what you can build on them

2/ eUTxO vs Account-based models

How we log info affects how data is processed and what computational resources are utilized

Unlike account models, eUTxO allows you to execute transactions with 100s of beneficiaries at once - you can do many transactions like this in parallel

3/ Understanding Account Models

Imagine you have a notepad, and you have the balance of two friends. To make a 10 payment between the two friends, you need to take an eraser to the balance of both friends and change it. So, every transaction affects the global state.

4/ Why Account-based models are used

As you can imagine, changing the global state with every transaction is computationally costly. However, it’s designed to be understood at a glance, and because you can easily port stuff designed by centralized TradFi entities it is favoured

5/ Clogged accounts

As every transaction affects all other portions of the network, it’s easy for the system to clog up and have problems processing transactions

This, when coupled with a fee auction system to prioritze transactions, leads to unsustainably high transaction fees

6/ eUTXO

ADA is often joked about not having smart contracts, but having smart transactions where every potential operation can be programmed to execute (or not) under certain conditions instead.

The emphasis is on the movement of coins, rather than the total balance of users

7/ Emphasis on transactions

Imagine a tall pinball machine where balls get caught by pins - the pins are “unspent transactions” (UTx) and the balls stand for coins.

The coins get trapped until a user releases the UTx pins and the balls then fall into someone else’s UTx

8/ Leftover Change

UTx might have more money than the transaction is worth, for instance, if a pin has 10 worth, but I’m just buying 3 worth

What then happens is that the pins are released, 3 goes to pins that the person I’m paying controls, and 7 goes to UTx that I control

9/ eUTxO

UTxO is what BTC has, where balls trapped in pins are released and then fall into another user’s UTxO

Cardano brings the e, which stands for EXTENDED, so instead of being a dumb set of pins, you can program the UTx to perform certain actions under specific conditions

10/ UTxO Balance

The total balance in a UTxO system isn’t just a number. It’s the sum of the contents of all UTxO that one can control and direct to perform a specific action

When users transfer money in this system they’re changing where the balls are and who controls the pins

11/ UTxO Efficiency

Under this system, you’re charged for releasing the pins, not aiming the balls in them, even if a single transaction involves multiple hundreds of people.

Contrast that to account-based systems where every minor movement is charged as it affects global state

12/ Decentralization vs Centralization

Decentralized systems have inefficiencies that can’t be overcome (you’re, after all, depending on multiple computers instead of one)

Not all tasks are better performed on a blockchain, but there are some, like record-keeping, which are

13/ Centralized systems & account models

Given the fact that account-based models are typically more than capable of withstanding the load in a centralized environment, parallelism is a secondary consideration over ease of use - you can always just throw more computing power.

14/ Compare & Contrast

Account models work better for centralized systems, as it simplifies operations.

eUTxO is able to perform multiple independent operations at once without compromising the rest of the network. So you can even know in advance if your transactions will work

14/ Porting Problems

ETH ported over something simple and easy to understand, achieving network effects quickly.

However, the structure of a blockchain is unsuited to fully benefit from account-based models - it’s like playing a game on a smart fridge.

You can do it but why?

15/ Conclusion

Judging a screwdriver for its ability to hammer nails is myopic

Account-based models are better in centralized ops. eUTxOs are far more robust, scalable and flexible when considering the constraints of decentralization.

For blockchain, eUTxO winner is clear!

16/ Shilling

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17/ Addendum

I'm just a snarky writer, I am not some crypto millionaire.

So if you would like to support my ability to write content that is free for the community to enjoy, please consider supporting my Catalyst proposal 🙂

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This post is based on this twitter thread.

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