Tracking user balances in decentralized networks relies on two models:

1. Account Model (Ethereum): Tracks balances like a bank ledger (simple and intuitive).
2. UTXO Model (Bitcoin): Tracks specific unspent outputs from transactions (complex but powerful)

1. Account Model (Like Your Bank Account)

Think of this like a simple bank statement:

Example:

• Alice has 100 ETH
• Alice sends 30 ETH to Bob
• Result: Alice now has 70 ETH, Bob has 30 ETH

2. UTXO Model (Bitcoin's Approach)

Think of UTXOs like individual bills in your wallet:

Example: Bob has three "bills" (UTXOs):

• One 5 BTC UTXO
• One 3 BTC UTXO
• One 2 BTC UTXO

To spend 7 BTC, Bob has multiple options:

1. Use the 5 BTC and 3 BTC UTXOs and receive 1 BTC back as 'change' (a new UTXO).
2. Alternatively, use the 5 BTC and 2 BTC UTXOs without needing any change.

Key Points:

• UTXOs can only be spent once (like using a paper bill)
• Each transaction creates new UTXOs
• Your balance is the sum of all your unspent UTXOs

3. Comparing Models