UTxO Ledger
Among the first decisions that must be made in the development of a blockchain network is to choose the blockchain's ledger model. How the blockchain tracks the evolution of state from block to block is a critical decision with deep implications for a blockchain's overall design and functionality.
With the benefit of a combined 10 years of blockchain experience at inception, Topl opted to adopt a UTxO ledger model, instead of an account based model, resulting in greater scalability and traceability being achievable with the Topl Blockchain.


The benefit in scalability of UTxO ledgers comes from the fact that the common method of achieving layer 1 blockchain scalability, sharding is easier and more natural to implement atop a UTxO ledger. With sharding, the major challenge lies in determining how to form the different shards. How do we group users or contracts onto one shard compared to another? This is critical, as realizing scaling benefits through sharding assumes that intra-shard communication and state updating is roughly 20x or more higher than inter-shard communication.
With UTxO ledgers, the lines for sharding can be drawn intelligently and even dynamically as the blockchain's state is simply the expression of all UTxO boxes or encapsulations, with each new UTxO linking explicitly to the segments of state on which it builds. In contrast, account-based ledgers rely on monolithic state tries that have no natural points of fracture, thus increasing the demand for inter-shard communication and substantially limiting the scalability improvements offered.


Perhaps simplest to discuss among the advantages of a UTxO ledger is the idea of improved traceability. We can consider the simple analogy of cash versus bank balances. When cash is transferred, it is possible (at least in theory) to trace exact bills through a chain of transactions regardless of how long. The bills themselves remain economically fungible, but nevertheless they can gather history. This is the exact model of a UTxO ledger, except since blockchains are digital and persistent, the ability to trace a singular asset such as a carbon credit or diamond changing hands countless times is entirely practical (and already happening on the Topl Blockchain) instead of simply theoretical.
On the other hand, account-based ledgers track assets in a manner akin to balances at a bank. In the event that two transactions affect a single balance at the same time (in the same block) traceability is broken as it is not longer possible to match the specific inputs to the balance uniquely to the new outputs.
Last modified 9d ago
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