Cardano uses the EUTXO (Extended Unspent Transaction Output) accounting model for its transactions which is an extension of the standard UTXO model enabling expressive smart contracts while keeping the semantic simplicity of the UTXO model.
In a UTXO model, the coin transfer is recorded in a directed acyclic graph with the nodes representing transactions and the edges representing transaction outputs. Wallets keep track of a list of unspent outputs associated with all addresses owned by the user and calculate the users’ balance.
- A UTXO is the output of a previous transaction.
- UTXO chains don’t have accounts. Instead, coins are stored as a list of UTXOs, and transactions are created by consuming existing UTXOs and producing new ones in their place.
- Balance is the sum of UTXOs controlled by a given address.
- UTXOs resemble cash in that they use ‘change’, and are indivisible (UTXOs are used whole).
The extended UTXO model gives Cardano the ability to run smart contracts safely while maintaining scalability capability.