Ledger System

The Conduct Protocol ledger implements a unique approach to tracking currency movement that combines the best aspects of traditional cash systems with cryptographic security.

Overview

Rather than create individual accounts with a balance, each user controls several independent dollar bills in the form of Unspent Transaction Outputs (UTxOs for short).

This design philosophy creates a more intuitive and secure way to handle digital currency transactions, similar to how physical cash operates in the real world.

Core Concepts

Unspent Transaction Outputs (UTxOs)

What are UTxOs?

• Digital equivalents of physical dollar bills
• Each UTxO represents a specific amount of currency
• Users can own multiple UTxOs of different denominations
• Each UTxO is cryptographically secured and independently spendable

UTxO Characteristics:

• Indivisible: Like physical bills, UTxOs must be spent entirely
• Unique: Each UTxO has a unique identifier on the blockchain
• Transferable: Ownership can be transferred through transactions
• Verifiable: Anyone can verify UTxO ownership and validity

Transaction Structure

Transaction Inputs

Transactions "spend some of these outputs in the form of 'transaction inputs'" to:

• Reference existing UTxOs that the sender owns
• Provide cryptographic proof of ownership
• Authorize the spending of those UTxOs

Transaction Outputs

Transactions produce new "transaction outputs" that:

• Create new UTxOs for recipients
• Split or combine value from input UTxOs
• Include necessary spending conditions

Security Model

An individual transaction output is locked by a small computer script. To spend a transaction output, you need to provide the correct parameters to its computer script.

Script-Based Security:

• Each UTxO is protected by a cryptographic script
• Scripts define the conditions required to spend the UTxO
• Most common script requires a specific cryptographic signature
• Prevents unauthorized spending and double-spending attacks

Authentication Process:

1. User attempts to spend a UTxO
2. Provides necessary parameters (usually a cryptographic signature)
3. Network validates the parameters against the UTxO's script
4. If valid, the UTxO can be spent in the transaction

Currency Denominations

Each transaction output includes a quantity (similar to the different denominations of USD: $1, $5, $10, $20, etc.).

Flexible Denominations:

• UTxOs can represent any amount of CNDT tokens
• Users naturally accumulate UTxOs of various sizes
• Provides flexibility for different transaction amounts
• Enables efficient transaction construction

Transaction Fees

To create a transaction output with some desired quantity, the transaction's inputs must spend at least that amount with some room left over for a "transaction fee"

Fee Mechanism:

• Total input value must exceed total output value
• The difference becomes the transaction fee
• Fees incentivize validators to include transactions
• Fee market determines transaction priority

Example Transaction:

Inputs:  UTxO A (50 CNDT) + UTxO B (30 CNDT) = 80 CNDT
Outputs: UTxO C (25 CNDT) + UTxO D (50 CNDT) = 75 CNDT
Fee:     80 - 75 = 5 CNDT

Advantages of the UTxO Model

Privacy Benefits

• Transaction Mixing: Multiple UTxOs can obscure transaction patterns
• Address Reuse Avoidance: New addresses can be used for each transaction
• Parallel Processing: UTxOs can be spent independently

Security Benefits

• Atomic Transactions: Either all inputs are spent or none are
• Replay Protection: Each UTxO can only be spent once
• Script Flexibility: Complex spending conditions can be implemented

Scalability Benefits

• Parallel Validation: UTxOs can be validated independently
• Stateless Validation: Validators don't need to maintain account balances
• Efficient Synchronization: Mobile clients can sync relevant UTxOs only

Mobile Optimization

The UTxO model is particularly well-suited for mobile devices:

Efficient Storage:

• Mobile wallets only need to track user's UTxOs
• No need to store complete blockchain state
• Selective synchronization reduces bandwidth usage

Offline Capabilities:

• Transactions can be constructed offline
• UTxO validity can be verified independently
• Enables better mobile user experience

Comparison with Account-Based Models

Aspect	UTxO Model (Conduct)	Account-Based Model
State Storage	Individual outputs	Global account balances
Privacy	Better mixing potential	More transparent
Parallelization	High	Limited
Mobile Efficiency	Optimized	Requires full state
Transaction Complexity	Script-based flexibility	Simpler operations

Script System

The Conduct Protocol ledger supports a flexible script system for UTxO spending conditions:

Common Script Types:

• Pay-to-Public-Key: Requires a specific signature
• Multi-signature: Requires multiple signatures
• Time-locked: Can only be spent after a certain time
• Conditional: Spending based on external conditions

This script system enables advanced features like:

• Escrow transactions
• Multi-party agreements
• Automated payments
• Complex smart contracts