Asked On Quora : What are the alternatives to Bitcoin's UTXO model?

In UTXO model, each trxn spends output from previous trxns and creates new output that can be spent by trxns later on operated by full nodes. Your wallet maintains a list of UTXOs associated with all addresses owned by the user and the balance of the wallet is calculated as the sum of these unspent transactions. Take a look at this example :

A has 2.5 btc i.e. one UTXO of 2.5 btc. A wish to send B 1.0 btc. A uses 2.5 btc as input to the trxn and sends 1.0 bitcoin to B, 1.5 btc sent back to A as a new UTXO with new address. So If B has 1 btc then total is 2 btc (sent by A) and having two UTXOs: one already of 1 btc and other one is of 1 btc by A.

Bitcoin blockchain uses this model, there is another model which is being used by Ethereum blockchain (answer to your question) i.e. Account Model which is quite simpler than the previous model. Lets see the example :

A has 2 ethers, A wish to send B 1 ether, so the network will reduce 1 ether from A i.e. A has 1 ethers now and network adds 1 ether to B. If B has 2 ethers already then total is 3 ethers.

Every trxn in account model make one output which leads to space savings. Any space savings is a benefit. As the network full nodes are meant to be operated by individuals rather then data centers the lower the data requirements the more potential participants.

But UTXO provides a higher level of privacy as the users use new addresses for each transaction and will be difficult to link accounts to each other.

Link to Answer : https://www.quora.com/What-are-the-alternatives-to-Bitcoins-UTXO-model/answer/Rajesh-Prajapati-71