Why we chose the UTXO Model for our Blockchain
If you are following us closely, you probably already know that the testnet of the LockTrip blockchain is about to be launched.
While we are working on the final details, we want to share a bit more info on a feature that we have not covered on our articles yet.
The UTXO Model
When it comes to how a blockchain determines the amount of coins/tokens a wallet has, there are generally two major models to choose from. The account model and the UTXO model (Unspent Transaction Output).
The account model is what Ethereum is using. Each wallet has exactly one wallet address (account), which stores all funds belonging to that account. This has the advantage that the owner has a more intuitive overview and makes it easier for third parties to understand what happens.
The UTXO model is what Bitcoin is using. Each wallet can have an unlimited amount of addresses and each transaction creates a new one*. At first, this seems to be a bad thing. It makes everything more complicated, right?
Here comes the main advantage, which we regard as one of the key properties any business using the blockchain will eventually look at — scalability.
We are not talking about the scalability of the blockchain itself, which is often a hot topic among crypto enthusiasts and basically comes down to the TPS (transactions per second) metric of a blockchain.
The scalability we are referring to does apply on the wallet level. With the account model, each wallet can only sign one transaction at a time. If you try to sign multiple transactions simultaneously without giving the network enough time to process them first, you will most likely end up in a chaos.
Try it out yourself! Sign 10 transactions at the same time. It will either end up in heavy congestion (confusing the network) or you will get a few failed transactions in the process. The more transactions you sign, the bigger the congestion gets.
Most of the businesses around the world will see their transaction frequency grow along with their product becoming adopted. The bigger the business, the more transactions should be expected. Of course businesses can create hundreds of wallets and keep the private keys for each of them and develop management tools for them so that a single wallet is never used for more than one transaction at the same time.
But you see how difficult, complex and expensive this will quickly become. With the UTXO model, multiple transactions can be signed and processed in parallel. This is simply because a single wallet can create as many addresses as needed. Those can all work in parallel without causing congestion or confusion. As a result, you get a much higher scalability for applications and DAPPs.
LockTrip is one example of a business that will greatly benefit from this and actually depends on it in order to technically support future adoption.
Worldwide, there are millions of bookings being placed through online travel agencies per day. The biggest booking site out there reports 1,500,000 night-bookings per day. With the current account model of Ethereum, processing even a small share of this would quickly render our smart contracts useless and overloaded. LockTrip would fail at the stage of scaling its service.
We expect many businesses to experience similar issues once they reach a certain level of adoption. As a result, the UTXO model will be essential to offer those businesses a stable, scaleable and sustainable solution.
The LockTrip blockchain is coming to the aid of the most successful blockchain businesses!
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*This feature can be turned off within the wallet, in which case the wallet address will remain the same and not change with every transaction. This will not affect the operation of the UTXO model.