UTXO Model of Cardano: simply explained

To understand the UTXO model, it is useful to think of a very large apple tree with many branches. There are people all over the tree sitting on different branches, with different amounts of apples on each branch. On this apple tree there is a branch from which ten apples hang. You are sitting on this branch of the tree, because you own these ten apples. Now imagine that you want to give four apples to a friend. To give these four apples, two new branches begin to grow at the end of the branch you were sitting on. One of these branches has six apples and another branch has four apples. Your friend then sits on the new branch with four apples and you sit on the branch with six apples. The two new branches have a total of ten apples together, which is the same as the original branch he sat on.

In this example, we can see that the two branches were out of the original branch. One of these exits, the branch with four apples, represents an exit that now belongs to another person. Because these have been sent to someone else, they are spent products. The second branch with six apples is your unspent product branch, which grew from the original branch. You can still give these six apples away, because these are the apples that are unworn items from your transaction to your friend. In this way, there is a clear chain of ownership that builds like a tree over time. The unspent transactions can be used for other transactions, etc.

In this way, Cardano avoids double-spending attacks. It is impossible to give away “apples” (ADA) that you don’t own, since you cannot make transactions with “apples” on a branch that you no longer sit on. Each branch is linked to a unique public address of which all have visibility through EMURGO’s Seiza Cardano Blockchain Explorer . This public address is linked to your private keys, which allow you to send funds to others.

Cardano uses a UTXO model, unlike the Ethereum, which uses an account-based model. The extended UTXO model allows more off-chain operations, avoiding most of the unnecessary on-chain operations. For example, you no longer have to interact with so many smart contracts. Instead, what you can do is verify that the information was signed by some specific private key after the use of your public key and we are also working with scalability solutions, such as sharding.

The execution of off-chain operations is especially useful in the area of pricing oracles, this can save costs to users and also speed up operations.

We have different types of oracles. So, for example, we have signed Coinbase data, so you don’t really need an advanced solution like Chainlink […] Because they are already giving you information that is signed so you can verify that with the smart Cardano contracts, so you can have the information faster and cheaper. Right now, something we see in the Ethereum, the gas rates are super high, so we are doing something on-chain, to be able to speed up the process.

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