Why UTXO matters over account-based blockchain systems long-term
Updated: Aug 24, 2022
In early August, 2022, a “coin mixer” (a tool used to hide transactions) known as Tornado Cash got sanctioned and addresses blacklisted globally.
A lot of people in crypto didn’t think this would be possible, because the culture cry that started with BTC proponents and crypto-anarchists has been “not your keys, not your crypto.”
But this could not be further from the truth, which brings me to UTXOs.
UTXO stands for “Unspent Transaction Outputs” and is what Bitcoin, Cardano and other Proof-of-Work systems leverage.
Ethereum, on the other hand, uses an Accounts-based system, which is actually what most people are used to today. It’s a lot “simpler” to use because it’s familiar. And because it is familiar, it is popular.
However, UTXOs were intentionally used in systems like Bitcoin because of what we’re now seeing with Tornado Cash and more:
In a UTXO system, a UTXO can include mixed “coins”, but an account can NOT.
Because ETH uses an accounts-based system, this is why you see all these people’s “accounts” (which are essentially their wallets with one address) being blacklisted for simply touching a tainted Tornado Cash transaction.
In order for people to truly get Bitcoin et al (even its developers), you need to understand UTXOs, which requires a fundamental paradigm shift. It will be harder for developers at first, but the long-term impact will mean safer, more reliable transactions for all.
We’re still years away before enough builders (developers/entrepreneurs) get it and start building with the new paradigm, properly.
This all is a good example of how culture and old paradigms can override logic/understanding of underlying systems when interacting with the “real world” - the madness of crowds, plus the power of greed - resulting in a few steps back, for more steps forward (hopefully).