UTXO vs Account: Understanding the technology behind Cryptocurrencies and how it maps to existing business practices is a challenge companies face when integrating these digital currencies. Many rely on payment systems that abstract details, losing out on the cost and speed advantages of crypto payments. At Web3 Enabler, we strive to strike a balance by supporting the intricate details of technology, such as the ‘UTXO vs Account Model Payments,’ for its advantages, while also abstracting it for salespeople to focus on selling
Wallet Addresses: UTXO or Accounts
A Payments Blockchain serves as a ledger for transactions, with objects moving in and out of accounts. Two major technologies underpin it: public key cryptography and distributed ledgers. Nothing will get blockchain enthusiasts going like an argument, “UTXO vs Account Methods.”
Public Key Cryptography consists of mathematical equations enabling you to possess a key pair. When someone sends a message to your public key, only your private key can decode it. Similarly, signing the message with your private key allows verification through your public key – essentially, digital signing encodes the message with the private key in a manner that only the combination of the public key and the public message can verify.
Economic incentives within the distributed ledger ensure the blockchain’s records (a series of data blocks) remain perpetually accessible for viewing. Thus, the blockchain establishes a secure, immutable transaction record.
The total value at any Wallet Address (public key) equals all transactions added to that address minus those that have left. Spending the money requires the private key, and the ledger’s immutable nature allows you to scan the chain to determine the value.
Account Model
The account model operates in a straightforward manner. Each “Account” is an address, and you send things in and out of it. Most of the Blockchains developed after Ethereum operate exclusively on this model. The addition of ERC-20 “tokens” – the technology behind stablecoins – and other smart contracts operate best in this simplicity of always in use accounts. These ledgers translate most naturally to the traditional accounting model. For blockchains on the account model, transactions utilize a single From and To transaction, using Smart Contracts for more complex transactions.
UTXO Model
Bitcoin and its successors (Web3 Enabler supports DOGE, LTC, and Dash) can operate in that manner, but with a desire for privacy and flexibility, the UTXO – unspent transaction output – model was created. For business simplicity, your wallet can maintain an unlimited number of addresses, and each transaction features multiple from and to addresses. As a result, you can obscure your history from outsiders by having a variety of addresses each storing the results of transactions.
If you wanted to track receiving 100 DOGE from 3 different clients, you’d create 3 addresses, each which would have 100 DOGE, for a total of 300 DOGE. If you had to pay your supplier 250 DOGE, you would send the 300 DOGE from the 3 wallets into the transaction, 250 DOGE out to your supplier, and 50 DOGE to a new address that you would use for future transactions.
UTXO Wallets: HD and Traditional
UTXO Wallets have some huge advantages for privacy, but they are difficult to track and account for all the addresses. Traditionally, you created multiple private/public key combos, hence the term traditional wallet. There is also a type called a Heuristically Determined Wallet, or HD Wallet, where with mathematics a singular seed phrase can create “master keypair” than can create a nearly infinite number of “child keypairs.” The power of the HD Wallet is that as the holder of the Master Private Key, you can control all the child addresses, while you can share with your Software Partner the Master Public Key, allowing us to generate all the Public keys but none of the Private Keys. As a result we can report all your transactions, only you can spend your coins, and your clients can only see their individual transaction.
Which Does Web3 Enabler Support? Both!
Web3 Enabler focused on transparency and compliance, and we believe that for most businesses the use of Stablecoins on an Account Wallet basis is the most practice for international transactions. We think that UTXO vs Account is a false choice, you should let customers pay you how they wish. However, from a business growth perspective, Bitcoin and other UTXO coins reflect a tremendous amount of value and therefore potential revenue. Web3 Enabler strives to support all types of blockchain transactions, allowing you to accept payments from customers with whatever coins or tokens they have.
Our Reporting model features two levels of abstraction to help. Method one, the transaction model relays blockchain data into your Salesforce CRM system for usage. You can view these on a block explorer for more details, but this abstraction layer turns blockchain data into normal corporate transaction data. Our second abstract model converts these chain transactions into inbound and outbound transactions that look more like a traditional accounting journal. This layer turns them into Asset Items with a fair market value and connects to your transactions.
Whether your customer has sent you Stablecoins on Ethereum or Bitcoins to a UTXO, you can see the underlying transaction data for auditability, but also a logical structure that shows that you received a certain amount of the Coin or Token and the value of the transaction. This lets the accounting department track transactions, the CRM record payments against the Opportunity or Order, and the underlying blockchain transactions take place in a safe and secure manner.
And we do it all without access to your funds or private key.
