UTXO in Digital Currencies: Account-based or Token-based? Or Both?
- URL: http://arxiv.org/abs/2109.09294v1
- Date: Mon, 20 Sep 2021 04:35:28 GMT
- Title: UTXO in Digital Currencies: Account-based or Token-based? Or Both?
- Authors: Aldar C-F. Chan
- Abstract summary: The distinction between token-based and account-based systems is well entrenched in economics.
The UTXO design of Bitcoin exhibits partially characteristics of a token-based system and partially characteristics of an account-based system.
- Score: 0.0
- License: http://creativecommons.org/licenses/by/4.0/
- Abstract: There are different interpretations of the terms "tokens" and "token-based
systems" in the literature around blockchain and digital currencies although
the distinction between token-based and account-based systems is well
entrenched in economics. Despite the wide use of the terminologies of tokens
and tokenisation in the cryptocurrency community, the underlying concept
sometimes does not square well with the economic notions, or is even contrary
to them. The UTXO design of Bitcoin exhibits partially characteristics of a
token-based system and partially characteristics of an account-based system. A
discussion on the difficulty to implement the economic notion of tokens in the
digital domain, along with an exposition of the design of UTXO, is given in
order to discuss why UTXO-based systems should be viewed as account-based
according to the classical economic notion. Besides, a detailed comparison
between UTXO-based systems and account-based systems is presented. Using the
data structure of the system state representation as the defining feature to
distinguish digital token-based and account-based systems is therefore
suggested. This extended definition of token-based systems covers both physical
and digital tokens while neatly distinguishing token-based and account-based
systems.
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