QTUM is a decentralised cryptocurrency platform, which attempts to create a hybrid system bringing together the advantages of both Bitcoin and Ethereum. It does this particularly through an Unspent Transaction Output (UTXO) system with Simple Payment Verifications (SPV). This page will explain how this platform works.
QTUM (QTUM) Chart
Bitcoin and Ethereum
Primarily geared toward businesses, QTUM strives to combine the unfailing cryptocurrency blockchain of Bitcoin with the powerful Ethereum environment, which facilitates the use of smart contracts and decentralised applications. Because of this combination of the two most widely used blockchain platforms, QTUM guarantees compatibility with most cryptocurrency systems worldwide, which is interesting particularly in terms of usage within the communications and other industries.
This combination had previously been cumbersome and hard to execute, in part because of the completely different transaction protocols used by both systems.
UTXO versus account systems
Ethereum uses a straightforward, account-based model for transactions: this means that when user A transfers money to user B, the amount of money is simply subtracted from the account of user A and moved into the account of user B. This is a simple, easily programmed system; an Ethereum blockchain is simply a list of such transactions, interspersed with smart contracts.
Bitcoin, however, uses an Unspent Transaction Output (UTXO) system, which is more complex but also more secure. Here, users do not simply hold a particular number of tokens, but these tokens are organised in so-called “outputs”, related to the transaction through which the user acquired the tokens.
If users do not own any output containing exactly the number of coins they wish to use for a transaction, they nonetheless send the entire output and then receive change back; this change is the Unspent Transaction Output or UTXO, and users then hold this, again, as a separate output.
Simple Payment Verifications
This seemingly more complicated system allows Bitcoin to use a Simple Payment Verifications (SPV) system, which has a number of distinct advantages.
Primarily, such a system allows Bitcoin to use “light wallets”; these are wallets that interact with the blockchain in a decentralised manner, but which do not actually store the entire blockchain. This makes mobile wallets on devices with limited storage much more easy to execute, while at the same time maintaining the required level of security.
Normally, however, Ethereum cannot function in such an environment because of the lack of UTXO transactions: QTUM attempts to solve this problem by merging the two systems together. It does this primarily by introducing the QTUM Account Abstract Layer: this serves as a communications layer between the Bitcoin Core protocol and the Ethereum Virtual Machine.
QTUM and proof-of-stake
QTUM also has its own cryptocurrency, also called QTUM, and the mining of this token works according to a proof-of-stake, rather than proof-of-work, system. This means users who mine QTUM do not receive a particular reward based on the power of their technological equipment, but based on the stake (in coins) they have in the system.