Cardano has introduced a new model called Extended Unspent Transaction Output (EUTXO), improving on Bitcoin’s original UTXO model.
The EUTXO system introduces much greater transparency and control in blockchain transactions, which can be managed and developed in an easier way for smart contract-driven blockchains.
Bitcoin operates with a system in which every coin in an individual’s wallet is an indication of an individual output, or the UTXO, that can be spent.
For instance, an individual with $50 and $20 in their wallet wishes to buy an item for $30. They will use the $50 and will be left with $20 in change. The $20 is then a new UTXO that will be usable later and, being straightforward in nature, will be able to avoid double-spending or fraud.
Cardano’s EUTXO system builds on this by attaching extra data and logic to each coin-like output, allowing it to support smart contracts.
This makes the model powerful for decentralized applications and gives developers much more control than traditional blockchain systems. EUTXO informs developers of the precise outcome of a transaction before its occurrence because it is based on only its inputs.
The global state of the blockchain is predictable, eliminating unpredictability. This makes the platform easier and less risky for developers to work on.
Cardano DeFi expands with Bitcoin interoperability
However, smart contract users also benefit because fees become clear before a transaction starts, avoiding any unexpected price changes. This structure removes the possibility of sudden fee spikes, giving users a more stable and affordable experience.
Cardano’s EUTXO model also allows multiple transactions to happen at the same time without conflict, increasing transaction speed. Because transactions are input-dependent, several can be processed simultaneously, boosting the system’s overall performance.
Charles Hoskinson, founder of Cardano, explained how EUTXO allows strong integration between code running off-chain and on-chain. This approach makes Cardano more adaptable to complex apps compared to account-based blockchains.
Input Output, an important group within Cardano’s ecosystem, is investigating the integration of Bitcoin with Cardano’s DeFi using EUTXO.
Nonetheless, this creates the possibility for cross-platform functionality while maintaining user transactions as secure and reliable on multiple networks.
