Thread by @Soorajksaju2

Ethereum's Account-based ledger model is dominating the DeFi space for now!!

but DeFi on #Cardano is on the rise.

Here are the reasons why E-UTxO ledger archictecture of #Cardano is superior to the Account-based model of #Ethereum

🧵👇

So what are the different ledger models?

1. #Bitcoin 's UTxO (Unspent Transaction Output) - ledger model

Satoshi invented #Bitcoin to be the permissionless decentralized internet money

Bitcoin introduced the UTxO ledger model to fulfill that purpose in the most elegant way

In the UTXO ledger model

individual transactions consist of a list of ''inputs'' and ''outputs''

and

the sum of the values consumed by a transaction’s inputs must equal the sum of the values provided by its outputs

The main advantage of the UTxO model is that

the semantic model or method of structuring data on the ledger stays simple

in a complex distributed and dynamic computing environment

But this also comes with some limitations

The main disadvantage is that

the expressiveness of programmability on the protocol based on the UTxO model is very limited.

It is impossible to build a DeFi Ecosystem, like what Ethereum has today, on top of the UTXO model

Before Vitalik Buterin developed Ethereum with his team

he was involved in a project also known as Colored Coins

Colored coins were supposed to represent applications like Dapps on Bitcoin

Which turned out to be unsuccessful due to the above-mentioned limitation

This limitation of #Bitcoin is what motivated Vitalik to choose the Account-based ledger model for #Ethereum

So what is Ethereum's Account based ledger model?

The account-based transaction model represents assets as balances within different accounts, similar to bank accounts.

The account model offers clear advantages when it comes to enabling smart contracts

This ledger model allows way more expressiveness of programmability

This resulted in the flourishing of DeFi on Ethereum as we see today.

Unfortunately,

this expressiveness comes with a cost

the account-based model of Ethereum introduces the notion of a ''shared mutable state''

Have you ever paid a hefty transaction fee for a failed transaction on #Ethereum??

It happens pretty often

this is a consequence of the ''shared mutable state''

This is one of the main limitations of Account-based model

What does ''shared mutable state'' mean?

if two or more parties can change the same data & if their lifetimes overlap

Then there is a risk of one party's modifications preventing other parties from working correctly

This significantly complicates the semantics of the contract code and introduces security issues

In other words Accounts based model is has a much bigger surface area for attacks than the UTXO model

Here is the significance of the E-UTxO/Extended-UTxO model of #Cardano

So what is Cardano's E-UTxO model?

Purpose of E-UTxO model is to extend and modify the basic UTXO model

to support more expressiveness without switching to an account-based model

Here, the UTXO model is extended with arbitrary logic

in the form of scripts and arbitrary data

The arbitrary logic/scripts allow the E-UTxO model to have more expressiveness

The arbitrary data carries with it information about the state of outputs

which enables the contract state to be localized

as the state is localized

There is no notion of a ''shared mutable state''

Why is the E-UTxO model of #Cardano superior to the Account-based model of #Ethreum?

1. The smart contract validation is performed on-chain and all other logic is off-chain

2. The ‘local’ nature of transaction validation allows for a high degree of parallelism

3. Inherently fragmented nature of E-UTxO allows for easier implementation of Layer 2 scaling solutions like isomorphic state channels (Hydra) and Rollups

The on-chain smart contract validation and off-chain execution of Turing-complete off-chain code

enables performing complex and resource-consuming computation without

without any impact on transaction cost

This feature enables DEXs like @CardanoMaladex and @GeniusyieldO to implement ideas such as programmable swaps and Smart Liquidity Vault

This off-chain execution of code is what Ethereum is attempting by pushing transactions to L 2/Sidechain scaling solutions

TL;DR -

E-UTxO model of #Cardano offers

• off-chain execution complex logic→ scalability

• high degree of parallelism→ scalability

• easier implementation of Layer 2 scaling solutions→ scalability

which makes it superior to the Account-based model of #Ethereum

If you found this thread valuable:

1. Toss me a follow for more threads on P2E and DeFi→ @Soorajksaju2

2. Here’s another similar thread you might enjoy:

https://twitter.com/Soorajksaju2/status/1512110589459546120?s=20&t=pROBHz0JrWSZuifipJD0YQ

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