Understanding Cardano Extended-UTXO

One of the innovations Cardano has come up with is an extension of Bitcoin’s accounting model. Bitcoin is essentially simple, but that doesn’t mean that its various parts can’t be improved. Technological advancements are being made as part of the Cardano project. Come explore the history of accounting models and their evolution.

Satoshi Nakamoto has used many technologies to build Bitcoin. One of them was an accounting model using Unspent Transaction Output (UTxO). Vitalik Buterin and his team decided to use a different accounting model based on accounts, as it seemed to be a better solution for executing smart contracts. In the article, we will call it the account-based model.

Nowadays, many projects like Solana, Polkadot, and Algorand use the same accounting model as Ethereum. There are advantages and disadvantages to both approaches, and developers face different challenges when building on top of the base layers. The IOG team building Cardano decided to go a different route and extended Bitcoin’s original model, UTXO. The new model was named Extended-UTXO.

Accounting model

Accounting is the foundation of today’s financial world. Every financial entity needs to keep track of individual account balances and cash flows. The ledger is also the foundation of blockchain networks because at its core…