Introduction The BlockDAG network combines the best aspects of modern decentralized ledger technologies. Today’s decentralized ledgers are split into two camps. In one camp, the UTXO model provides scalable, privacy-friendly support for simple payments. In the other camp, the account-based model supports smart contracts, laying the foundation for decentralized finance and other decentralized applications. UTXO vs Account Models? In ledgers such as Bitcoin, the basic unit of value is the unspent transaction output (UTXO). Each UTXO has a value and an owner. In the everyday world, if you buy a $5 coffee with your $10 note, you hand that note to the cashier, who gives you back your coffee and her $5 note as change.
In the same way, if you were to buy a $5 coffee with your UTXO worth $10, you would create a transaction with one input: your $10 UTXO, and two outputs: a $5 UTXO sent to the cashier’s address, and another $5 UTXO sent back to an address you control, as change. In ledgers such asEthereum, by contrast, each unit of value is associated with an account, which has an associated balance. To buy that $5 coffee, you would simply transfer $5 worth of value (cryptocurrency) from your account to the cashier’s account. Each model has certain advantages. The UTXO model is attractive because it is potentially more scalable. Since transactions have discrete outputs, they can be verified independently without having to locate and evaluate account balances.
The UTXO model provides enhanced privacy: users can create new output addresses for each transaction, while the account model links balances directly to user accounts. Nevertheless, the account model is attractive for other reasons. The account model facilitates the use of smart contracts, programmable automata that can control and manage assets. Smart contracts lie at the heart of decentralized finance (DeFI) and other sophisticated decentralized applications (dApps). The BlockDAG network supports both UTXO and account models. BlockDAG’s UTXOs support fast, scalable payments, while BlockDAG’s EVM-compatible account-based subsystem supports standardized smart contracts. A library is provided to connect these two worlds, providing developers with the best of both worlds.
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