Recently, Cardano held a meetup in Rotterdam, Netherlands at Blocklab. Blocklab is a blockchain-backed firm that collaborates with the industry experts to develop use cases for the blockchain technology. At the meetup, IOHK’s Haskell consultant Edsko de Vries gave a presentation explaining the mathematics involved in the Cardano Wallet.
Erik de Vries is an expert programmer, holding high qualifications in advanced [substructural] type systems for pure functional languages such as Haskell. Vries is also a widely published researcher with his work reaching international platforms.
Vries explained the UTxO process of transaction
UTxO is the abbreviation for Unspent Transaction Output, which is also the base model for the Cardano Wallet. To explain the transactions that take place on the wallet, Vries further compared UTxO with the real-world cash system. He cited an example of Alice and Bob where Alice owes Bob 70.
Presenting a visual explanation of the scenario, Vries has tried to show how a real-world bank account generally records transactions. In a cash scenario, Alice will physically give 100 to Bob, getting 30 in return from him.
However, the same transaction will go about differently with UTxO. Here, Bob is not required to give the change. Alice can simply ‘destroy’ her coin of 100, fetching a breakdown of 70 and 30. The ‘destroying’ of the coin is significant for the prevention of double-spending. This process is known as UTxO.
In the next scenario, Alice has 10 and 50 and owes Bob 8. Currently, Bob has nothing. Here, a problem of ‘dust’ can occur if Alice tries to break down her 10 into 2 and 8. The coin with the value of 2 will have the problem of dust as it is an insignificantly small value.
Vries takes an assumption that small coins are hard to spend and will perform badly. Another feature of these transactions is that one can only spend a limited number of coins. Hence, small coins are probably going to lead the holder into having a pile of coins that cannot be spent.
Moreover, the Cardano protocol applies a transaction fee depending on the data size of the transaction. In other words, holding small value coins and spending more of them for one transaction will result in a higher transaction fee. Returning to the scenario of Alice having 10 and 50, it is preferable to destroy the coin of 50 into 8 and 42. Being careless here will result in holding ‘dust’, stated the speaker.
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