TL;DR
Qtum is a blockchain network founded in 2016 that combines Ethereum's smart contract capabilities with Bitcoin's UTXO accounting system. It achieves this through a technology called Account Abstraction Layer, which gives Qtum the benefit of implementing updates from both Bitcoin and Ethereum.
Qtum is decentralized, meaning there is no permission required to validate transactions. Anyone can run a node, needing only a device and internet connection. Qtum uses a Mutualized Proof of Stake consensus mechanism to disincentivize junk contract attacks. Rewards are split among multiple successful validators and partly delayed for 500 blocks.
Qtum has native support for token standards such as QRC-20, QRC-1155, and QRC-721. The QTUM cryptocurrency is the network's native token, used for transaction fees, staking (which can even be done offline), and governance. You can purchase QTUM on Binance with a credit or debit card or trade for it using other cryptocurrencies.
Qtum is based in Singapore, with offices in Miami and Stockholm.
Introduction
We've moved a long way from Bitcoin when it comes to blockchain technology. Most new Layer 1 platforms use innovations far beyond the original Bitcoin model. Qtum, however, has taken desirable elements from Ethereum and Bitcoin. This combination makes it a particularly interesting project due to its unique architecture. So, if you've ever wondered what makes Qtum special, Academy is here to run you through its unique aspects together.
What is Qtum?
Qtum (pronounced Quantum) was founded in 2016 by Ashley Houston, Neil Mahl, and Patrick Dai. The project ran an ICO (Initial Coin Offering) in 2017, raising $15.6 million before launching its mainnet in September of that year. The Qtum network's primary concept is to combine aspects of Ethereum (ETH) and Bitcoin's (BTC) networks. The team has taken Bitcoin's unspent transaction output (UTXO) model and combined it with Ethereum's smart contract capabilities while leveraging the upstream benefits of both chains.
How does Qtum work?
There are four significant aspects to the Qtum network:
1. A UTXO model for accounting.
2. A Solidity smart contract platform.
3. An Account Abstraction Layer.
4. A Proof of Stake consensus mechanism.
To create this mix, Qtum has used a modified Bitcoin Core client software to complete the transaction base of their network. The network is also Ethereum Virtual Machine (EVM) compatible and uses Solidity as its coding language.
This means you can easily port code and DeFi (Decentralized Finance) projects from Ethereum onto Qtum. Also, its custom Proof of Stake (PoS) consensus mechanism has been made to target critical security issues.
What is a UTXO?
UTXOs are Unspent Transaction Outputs and a common concept in the cryptocurrency world. On some networks, cryptocurrency transactions are made of outputs and inputs. Sending 1 BTC, for example, requires you to use UTXOs as inputs to then "send" as an output. These UTXOs are then marked as spent, and the output becomes a new UTXO.
Imagine you're sending 0.6 BTC. This actually will be made up of 0.4 BTC and 0.2 BTC outputs from previous transactions. However, if you only wanted to send 0.3 BTC, you would need to split the 0.4 BTC UTXO into 0.3 for your friend and 0.1 for yourself. This leaves 0.4 BTC entirely spent and two new UTXOs of 0.3 and 0.1.
This system of accounting may seem odd, but it has its benefits:
1. It's easy to combat double-spending as you can see if an output is already spent.
2. A network can process transactions in parallel as every transaction contains independent outputs.
Ethereum, on the other hand, uses an account transaction model similar to what you would find with a bank account. This particular model maintains a global state of all balances on the network.
What is the Account Abstraction Layer?
Blockchains with smart contract capacity don't normally use the UTXO accounting system for technical reasons. Qtum's answer is to use an Account Abstraction Layer (AAL). As the name suggests, Ethereum's accounts system is abstracted from its technical implementation.
With an accounts model, smart contracts work with an address or smart contract's end balance. However, with UTXO, a smart contract must decide which UTXOs to use, often across several public and private addresses. Internal transactions between contracts also provide a similar problem. A UTXO blockchain must record all transactions, making the process difficult.
AAL works by using a UTXO transaction's output to create a smart contract. It then sends the transaction to the contract account to trigger the contract's execution. The AAL processes the results and adapts them to UTXO.
The AAL technology allows Qtum to take advantage of both Ethereum and Bitcoin updates. For example, when non-fungible token support was added to Ethereum, Qtum had the ability to adopt it quickly. Notable Bitcoin updates were Segregated Witness (SegWit) and Taproot. Being UTXO-based also allows Qtum to benefit from the Lightning Network and other technologies.
What is Proof of Stake?
Mutualized Proof of Stake is Qtum's custom consensus mechanism. The Qtum team designed it to combat junk contract spam attacks by increasing their cost. The mechanism shares block rewards between block-producing nodes and also delays the payment. Each reward is split equally between the successful validator and the previous nine successful validators. A portion of the rewards is also delayed for 500 blocks. This system makes it difficult for attackers to calculate the exact rewards from a potential attack.
What is offline staking?
In August 2020, Qtum introduced a new offline staking mechanism for QTUM holders. Rather than give up custody of your QTUM tokens, you only need to provide your wallet address. Your coins stay in your wallet and can be spent or undelegated at any time. The consensus mechanism has two actors: Super Stakers (validators) and delegators.
Delegators send their wallet address via a smart contract to a Super Staker. A fee is agreed on that the delegator will pay, and the Super Staker can decide to accept the delegation. The Super Staker can then stake the delegator's UTXOs. If a Super Staker successfully validates a block, they will share a reward with their delegators and charge a fee.
Once delegated behind a Super Staker, you passively earn QTUM. You don't need to be locked into a smart contract, and you can work with an offline solution such as a hardware wallet.
Super Stakers can then win block rewards for the delegates and charge a fee for staking. But after the delegation, the delegator's wallet does not need to be kept connected to the network. In other words, delegates receive rewards in passive mode.
What is QTUM?
QTUM is Qtum's native cryptocurrency, which is distributed to users via the network’s consensus mechanism. You can use the QTUM coin to:
1. Pay transaction fees on the network. QTUM uses an Ethereum-like model for calculating gas fees.
2. Participate in Qtum's on-chain governance protocol by voting on proposals. These could include changing the block size or network fees. During times of high usage, the cost of gas can be lowered, and the block size increased to handle layer 1 transactions up to 1,100 TPS. If required, a layer 2 solution like Lightning Network can be used to increase this throughput.
3. Stake as either a delegator or Super Staker to validate blocks. Each new block provides rewards to delegators and Super Stakers. Qtum halves the rewards periodically using a method similar to Bitcoin’s halving. This mechanism will ultimately create a finite QTUM supply which will take decades to achieve. At this point, stakers will be rewarded with transaction fees only.
Conclusion
As a solution, the Qtum blockchain is quite unique. It removes the problems seen with Proof of Work (PoW) by implementing a PoS system with upgrades. It allows for smart contracts and Decentralized Applications (DApps) while also using UTXO accounting. While many blockchain platforms in the ecosystem develop brand new methods, Qtum has taken successful functionality from previous ones. So, if you've been considering Qtum as an altcoin, you now can make a more informed decision based on its use cases.