Qtum Network Explained

Founded in 2016, Qtum is a blockchain network that combines the smart contract capabilities of Ethereum with the UTXO accounting system of Bitcoin through Account Abstraction Layer (AAL) technology.

It is decentralized and requires no permission to validate transactions. Anyone can run a node with just a device and an internet connection. To discourage junk contract attacks, Qtum uses a Mutualized Proof of Stake consensus mechanism, with rewards shared among multiple validators and partly delayed for 500 blocks.

Qtum has native support for token standards like QRC-20, QRC-1155, and QRC-721. Its native token is QTUM, used for transaction fees, staking, and governance. Qtum has offices in Singapore, Miami, and Stockholm.

Basics

Blockchain technology has come a long way since the inception of Bitcoin. Many new Layer 1 platforms use advanced technologies far beyond the original Bitcoin model. Nevertheless, Qtum has incorporated desirable features from Ethereum and Bitcoin, making it a fascinating project due to its unique architecture.

What Is Qtum Network?

In 2016, Ashley Houston, Neil Mahl, and Patrick Dai founded Qtum. The team raised $15.6 million through an ICO in 2017, after which they launched the mainnet in September of the same year. The primary goal of the Qtum network is to integrate Ethereum and Bitcoin networks. The team combined Ethereum's smart contract capabilities with Bitcoin's unspent transaction output model, taking advantage of the benefits of both chains.

How Does Qtum Work?

Qtum's network is built upon four significant elements, namely a UTXO accounting model, a Solidity-based smart contract platform, an Account Abstraction Layer, and a Proof of Stake consensus mechanism. The Qtum team has achieved this combination by implementing a modified Bitcoin Core client software that serves as the transaction base for the network.

Qtum is Ethereum Virtual Machine (EVM) compatible and uses Solidity as its programming language, making it possible to move DeFi projects and code from Ethereum to Qtum. Furthermore, Qtum has developed a custom PoS consensus mechanism that addresses security issues.

UTXO

In the world of crypto, UTXOs or Unspent Transaction Outputs is a common concept. On some networks, transactions are made up of inputs and outputs, and UTXOs are used as inputs to create outputs. After a UTXO is spent, it becomes a new output.

When you send 0.6 BTC, it will consist of 0.4 BTC and 0.2 BTC outputs from prior transactions. If you wanted to send 0.3 BTC, you would have to divide the 0.4 BTC UTXO into 0.3 BTC for your friend and 0.1 BTC for yourself, creating two new UTXOs of 0.3 and 0.1 BTC.

This accounting system has benefits, including its ability to prevent double-spending and process transactions in parallel. Ethereum, on the other hand, uses an account transaction model, similar to a bank account, which keeps a global state of all balances on the network.

Account Abstraction Layer

Qtum's unique approach to combining Ethereum and Bitcoin's networks includes using an AAL to address technical challenges with the UTXO accounting system. Unlike Ethereum's accounts model, smart contracts in a UTXO blockchain require deciding which UTXOs to use, often across multiple public and private addresses, which complicates recording transactions.

The AAL solves this issue by creating a smart contract from a UTXO transaction's output and sending it to the contract account to trigger its execution. This approach enables Qtum to take advantage of Ethereum and Bitcoin updates, such as non-fungible token support, Segregated Witness (SegWit), and Taproot. Additionally, being UTXO-based enables Qtum to benefit from Lightning Network and other technologies.

Mutualized Proof of Stake

Qtum has created its custom consensus mechanism called Mutualized Proof of Stake. The purpose of this mechanism is to increase the cost of junk contract spam attacks. The way it works is that it shares block rewards among block-producing nodes and delays the payment. Rewards are split equally between the validator that succeeded in creating the block and the nine previous validators. Additionally, a portion of the rewards is held back for 500 blocks, making it difficult for attackers to calculate the exact rewards of a potential attack.

Offline Staking

QTUM holders can stake their tokens without giving up custody, thanks to Qtum's offline staking mechanism. The consensus mechanism involves two actors: Super Stakers and delegators. Delegators provide their wallet address to a Super Staker via a smart contract and agree on a fee. If accepted, the Super Staker can stake the delegator's UTXOs. When a Super Staker validates a block successfully, they share a reward with their delegators and charge a fee.

QTUM tokens stay in the delegator's wallet, and they can spend or undelegate them at any time. The mechanism enables delegates to earn QTUM passively without being locked into a smart contract, even with an offline solution like a hardware wallet.

Super Stakers receive block rewards for their delegates and charge a fee for staking. After delegation, the delegator's wallet does not need to be kept connected to the network, and rewards are earned in passive mode.

What Is QTUM?

QTUM is the native cryptocurrency of the Qtum network, which utilizes its consensus mechanism to distribute the token. QTUM can be used for three main purposes:

• Paying transaction fees on the network, calculated using an Ethereum-like gas fee model.
• Participating in Qtum's on-chain governance protocol to vote on proposals such as changes to network fees or block size. During high usage periods, gas costs can be lowered and block size increased to handle up to 1,100 TPS. Layer 2 solutions like the Lightning Network can also be used to increase throughput.
• Staking as a delegator or Super Staker to validate blocks, with each new block providing rewards that are halved periodically using a method similar to Bitcoin's halving. This mechanism ultimately aims to create a finite QTUM supply, which will take decades to achieve. Afterward, stakers will be rewarded with transaction fees only.

Conclusion

Qtum has adopted a unique solution to address problems associated with PoW by integrating a PoS system with improvements. This enables the platform to support smart contracts and Decentralized Applications, as well as the use of UTXO accounting. Unlike other blockchain platforms, Qtum has leveraged the functionality of existing systems to build its platform. This makes it an ideal choice for those considering Qtum as an altcoin, as they can now make more informed decisions based on its multiple use cases.