UTXO vs. Account Model

UTXO Model

In the UTXO model like the one Bitcoin uses there are not accounts or balances. Instead, individual coins (UTXOs) are transferred between users, similar to cash. An unspent transaction is directly referring to tokens that a wallet has received and kept unspent. As an example: when a user initiates a transaction to send half of their wallet's BTC the entire amount of BTC is sent and the remaining BTC is sent back to their wallet but to the next sequential address in their wallet. To query how much Bitcoin a wallet contains, a node must query the blockchain to look for that wallet's incoming vs outgoing transaction amounts and sum them to find their unspent amount or "current balance".

Account Model

In an account model, like the one Ethereum uses, each address active on the blockchain has an associated balance - similar to how a bank operates an account ledger which details which accounts/addresses hold what assets. A transaction sending a specific amount only sends that amount of funds, but also includes a small tip to the Ethereum Staker/Node Operator who includes the transaction into the next block. There is also a base fee that is entirely burned. Bitcoin and Ethereum are the two most popular cryptocurrencies. They are similar in some aspects but very different in others. For example, Bitcoin uses proof of work and Ethereum uses proof of stake to confirm transactions, and Bitcoin employs what is called the unspent transaction output (UTXO) transaction model, whereas Ethereum uses the account model.

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