Cardano, similar to Bitcoin, operates on an Unspent Transaction Output (UTXO)-based blockchain. Unlike account-based models (e.g., Ethereum), Cardano’s ledger uses an innovative Extended UTXO (EUTXO) model, introduced via the Alonzo upgrade to enable smart contracts and multi-asset support.
Understanding the UTXO Model
In the UTXO model, transactions consist of inputs (unspent outputs from prior transactions) and outputs (newly created UTXOs). Assets reside in unspent outputs rather than accounts.
Key Components
Transaction Output
- Contains an address (acting as a cryptographic lock) and a value.
- Requires a valid signature (key) to unlock.
- Each UTXO is consumed entirely and once.
Transaction Input
- Points to a previous UTXO using a pointer and signature.
- Marks the referenced UTXO as spent upon validation.
Nodes maintain a UTXO set (chainstate), updated with each new block. Wallets manage UTXOs and initiate transactions for users.
Cardano’s EUTXO Innovations
The EUTXO model enhances UTXO in two critical ways:
Scriptable Addresses
- Addresses can embed arbitrary logic (e.g., smart contracts) to validate spending conditions.
- Example: A script checks transaction context before approving input usage.
Custom Data Carrying
- Outputs include arbitrary data (e.g., state information) for advanced scripting.
- Scripts access output data, transaction details, and redeemers (input-specific data).
👉 Explore how EUTXO enables scalable DApps
EUTXO vs. Account-Based Models
| Feature | EUTXO (Cardano) | Account-Based (Ethereum) |
|-----------------------|--------------------------|--------------------------|
| Validation Scope | Transaction + Inputs | Global State |
| Parallelization | High (if no shared UTXOs)| Limited |
| Fee Predictability| Exact upfront | Variable |
Advantages of EUTXO:
- Deterministic Execution: Transactions succeed if inputs are unspent.
- Off-Chain Validation: Pre-submission checks reduce on-chain failures.
- Enhanced Privacy: UTXO’s graph structure obscures transaction linkages.
Design Patterns for DApps
EUTXO demands unique approaches:
- Multi-UTXO Strategies: Split logic across UTXOs for parallelism.
- State Management: Use output-carried data for progressive contract execution.
👉 Learn advanced EUTXO use cases
FAQs
Q: Why is EUTXO more scalable than account-based models?
A: Parallel transaction processing is possible when UTXOs are independent, reducing bottlenecks.
Q: How does EUTXO ensure fee predictability?
A: Fees depend solely on the transaction’s logic and size, computed before submission.
Q: Can EUTXO scripts access blockchain history?
A: No—scripts only see the current transaction, inputs, and designated redeemers.
Q: Is UTXO privacy better than accounts?
A: Yes. UTXOs obscure balances by design, whereas accounts expose total holdings.
Conclusion
Cardano’s EUTXO model merges Bitcoin’s security with Ethereum-like programmability, offering deterministic execution, scalability, and cost transparency. Developers must adopt UTXO-centric designs to leverage its full potential.
For deeper insights, read the EUTXO technical blog.