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The UTXO model used in Bitcoin and the account model utilized by Ethereum represent two distinct approaches to managing transactions and balances in cryptocurrencies. Bitcoin's UTXO model operates on an "unspent transaction output" basis, where each output of a transaction can be used as an input for a new transaction, creating a chain of transactions. This system is likened to physical cash, where each bill has a history and can be traced. On the other hand, Ethereum's account model functions more like a traditional bank account, maintaining a balance that can be directly debited or credited with transactions, offering a more flexible and feature-rich platform for smart contracts. The choice between the two models hinges on the specific needs of a blockchain system, with Bitcoin prioritizing simplicity and traceability, while Ethereum focuses on versatility and functionality.
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