A simple explanation of Cardano’s eUTXO approach vs. Ethereum’s on smart contracts

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Coinmonks

4 min readNov 3, 2021

I am always baffled by the rhetoric in the news on Cardano’s delay delivering. As soon as the Alonzo era was launched on September 12th, 2021 critics started complaining that you can’t run dapps on it. What they meant was that you can’t write decentralized apps the same way you can write them on Ethereum’s blockchain, because we follow a completely different model for smart contract support.

This is how the Account model works in a few words on Ethereum’s blockchain: there is a sort of State machine which knows the state of an address at any given time. It is updated constantly. Say Alice has 10 ETH and sends 1 to Bob and 2 to Christos, the state machine can be updated as: Alice’s address now has 10–1–2=7ETH, Bob’s has 1 and Christos’ has 2ETH. So, in the same block, Alice can send more than one transaction from her address, as long as it is valid according to the state machine, i.e. the sum of output doesn’t exceed the balance.

The extended Unspent Transaction Output model (eUTXO) works differently. It is based on Bitcoin’s UTXO model, and just adds a datum to the transaction, i.e., contract-specific information. If Alice has 10ADA and wants to send 1 to Bob and 2 to Christos, she has to send 1 to Bob and receive in change 10–1=9 (like giving a $10 bill and receiving $9 in change), then after this has been verified (~20 seconds for the next block to be posted), she has to send 2ADA to Christos and receive 9–2=7ADA back in change.

On one hand this approach makes the system more robust, as there is no State machine necessary, no single point of failure, and all addresses can interact with all others independently. On the other hand, it has the inherent inability to send multiple transactions from one address during one block, a feature necessary for Decentralized Exchange Platforms (dEX) where a liquidity pool is necessary and multiple people sending/receiving without time lag.

That limitation was known since the paper was release, early 2020 and probably before that, when the decision for the eUTXO was made. The solution is that a layer 2 application will run on Cardano (Layer 1) and handle the multiple requests per block, synchronizing with the blockchain on every block. SundaeSwap and OccamFi are very close to releasing their dEXs, allowing for many dApps to be created. It just takes time. Just as it takes time for Ethereum to upgrade to 2.0, and so many other great projects that are involved in the improvement of the crypto space, and consecutively, the world.

We have to realize that development will keep happening, and more and more projects will come that will bring value. Exactly as Ethereum was introduced in 2015 and completed Bitcoin’s ability’s, Cardano and other projects come later to complete or replace or improve Ethereum’s and Bitcoin’s abilitites. We should accept and encourage the new efforts, because stagnation is the begining of decay. Each has a different approach, with pros and cons. Cardano’s approach is the scientific method, where every new protocol and algorithm are peer-reviewed by the scientific community and published before implementation and release. That means that it takes more time, but it is build on solid foundations. Other projects prefer to release directly and let the market shape its form, or correct its errors. But time will tell which approach is better, as the market in its totality is an impartial judge.

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A simple explanation of Cardano’s eUTXO approach vs. Ethereum’s on smart contracts

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Written by Christos Palaskas