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Bitcoin UTXOs and Ethereum accounts in 5 🖐

Bitcoin UTXOs and Ethereum accounts in 5 🖐
By Fernando Gutierrez • Issue #75 • View online

What are #Bitcoin UTXOs, and how they compare to #Ethereum accounts? 🧾
Bitcoin and Ethereum use different systems to track funds in the blockchain, with distinct pros and cons.
In a very simplified way, Bitcoin is similar to cash, with coins and notes in, out, and change (although with flexible denominations), and Ethereum to a bank account, with a permanently updated balance.
Bitcoin tracks unspent transactions, or UTXOs. An address can hold many UTXOs. A wallet can hold many addresses.
When spending, the wallet selects one or more UTXOs and creates new ones: one for the payee and one for the sender. This last one is the change, created only if the sum of the used UTXOs is higher than the amount to send in the transaction.
Ideally —most wallets do it— the change should be sent to a new address in the wallet for privacy reasons. This protection, however, is limited because when you spend UTXOs under different addresses in the same transaction, anyone can see that you control both addresses.
UTXOs are neat and can scale, but they’re not intuitive and force wallet developers to abstract a lot from the user. Smart contract usage is limited because there’s no stored state.
Ethereum uses a more intuitive system of accounts. The blockchain keeps track of the balance on each account.
When someone sends funds, it deducts them from the sending account and stores the new balance. Then, it adds the funds to the receiving account and stores the new balance.
The accounts system is efficient and simple, making complex smart contracts possible.
It is also more difficult to scale because parallel processing is a challenge. Usually, things end up being done sequentially because of that. Also, it poses privacy issues because the account is constantly reused.
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Of course, this is not financial advice yada yada yada.
Losses are losses, no matter how you account for them. Do your own research, or you will get very familiar with the concept.
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Fernando Gutierrez

I'm catching up with crypto projects and concepts in a few paragraphs for at least 50 days straight.

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