In this episode of the Ergo & Blockchain series, we will look at various aspects of [scalability](https://www.investopedia.com/terms/s/scalability.asp) and why they are crucial for cryptocurrency adoption. Since the introduction of smart contracts to blockchains, the industry has witnessed issues relating to exponential growth for storage, node requirements and increased gas fees. These issues have created barriers of entry for new people, often due to high transaction fees. There are few options to reduce the congestion and increase throughput, either through upgrading hardware and using more energy or by making the underlying infrastructure more efficient.

## Vertical Scaling

Vertical scaling is the easiest way to increase a network’s scalability. In this model, scalability is increased by upgrading the computational hardware and using more energy. There is no software development because bandwidth increase relies on brute power. That is why there is a limit to this type of development - expenses increase as the network grows. 

When looking at blockchains, vertical scaling means that the validator nodes have high hardware requirements. Inevitably, this causes centralization only when big actors with powerful servers participate in network consensus. In this case, a blockchain can easily achieve thousands of transaction-per-second (TPS) values. This type of blockchain would represent a network with only a couple of nodes representing the whole consensus.

Suppose only a handful of validators are guarding the network. In this case, the network can be called blockchain as a service (BaaS), which means that a third-party provides a cloud service to deploy decentralized applications. The problem with this model is that the network contains centralized points of failure. Hence, only the service providers can maintain the consensus mechanism and it can be difficult for new participants to join the consensus.

## Horizontal Scaling

Horizontal scaling indicates that the existing resources (ex. hardware and energy) are not altered but the network’s capability to use the resources is scaled up. There are higher costs (at least in the short term) to this development, as it needs more human resources, more research and more time without the promise of instant returns. Yet, technological advancements can be a collaborative development and a power that fuels more research. Following that path, the returns can increase exponentially over time.

Apart from reducing the computational costs in the long term, another benefit of this type of scaling is the ability to decrease centralized points of failure. As the network relies less on supercomputers, more actors can own the network and the blockchain can become more decentralized. That being said, it is always up to individuals whether they want to use existing solutions or support new advances.

## Cryptocurrency Adoption

It is a certainty that blockchains need to scale to accommodate mass adoption. As mentioned above, this can be achieved by either using more powerful servers or utilizing smaller units more effectively. For the mass adoption of cryptocurrencies, blockchains must handle a vast number of transactions, including micropayments and simple signing contracts.

Layer 2 scaling solutions are smart contracts that facilitate blockchain transfers by reducing costs and processing time. Layer 2 solutions are also called off-chain solutions because the transfers and interactions do not happen on the main blockchain. Instead, users interact with a separate layer connected to the main blockchain. To use Layer 2 scalability, one must first bridge the assets from the main chain to the off-chain protocol.

## Layer 2 Solutions

**Lightning Network:** Layer 2 solutions also have validator nodes, so their security is not always tied solely to the main chain. For example, [Lightning Network](http://lightning.network/how-it-works/) is a Bitcoin scaling solution and it also has its own nodes that validate transactions. There are no mining rewards for hosting a Lightning Network node so the node operator income relies solely on transaction fees.

**Plasma Chains:** This is a hybrid approach (which is applied by Polygon) that uses a proof-of-stake (PoS) consensus layer on top of Ethereum. This parallel side-chain, which is based on the [plasma chains](https://ethereum.org/en/developers/docs/scaling/plasma/) design, is a lower-cost chain that relies on stakeholders to secure the network. As the staking tokens interact with the main chain, the model uses some part of Ethereum’s security and some part of its own inside PoS consensus. When users stake their tokens, they delegate the consensus to a validating operator, known as trusted and secure server providers.

**ZK-Rollups:** Utilizing [zkSNARK](https://blog.ethereum.org/2016/12/05/zksnarks-in-a-nutshell/)s (zero-knowledge succinct non-interactive arguments of knowledges), they can decrease network load by enabling transactions to be processed in big batches. The security of the transactions relies directly on the main-chain secured by adding mathematical proofs to validate transactions. However, it is relatively harder than hybrid approaches to implement all the functionalities of the mainnet with full security. Various projects are developing their own approach for implementing zkSNARKs.

**Optimistic Rollups:** [Optimistic Rollups](https://docs.ethhub.io/ethereum-roadmap/layer-2-scaling/optimistic_rollups/) work a little bit differently than plasma and zkSNARK in terms of securing the layer. Optimistic rollups compute the transactions on a parallel EVM compatible chain called Optimistic Virtual Machine (OVM) and communicate with the main chain. The model is called optimistic because it relies on the Fraud-Proof principle, where the aggregators are not actively verifying layer 2 but they interfere in the event of a fraud dispute. 

**State Channels:** Lastly, a model called state channels is a type of peer-to-peer signing model and the design can also be used as payment channels for simple purposes. The problem, however, is the state channels are pre-set contracts for which the participants are defined at the launch. Each time a new participant wants to use the channel, a new contract creation is needed. In return, there is higher privacy and security but little to no flexibility for an open system. IOHK research members published a new model called [Hydra: Isomorphic State Channels](https://iohk.io/en/research/library/papers/hydrafast-isomorphic-state-channels/) that introduces multi-party state channels by utilizing both on-chain and off-chain computations powered by the eUTXO design.

**NIPoPoWs:** [Non-interactive proofs of proof of work](http://docs.ergoplatform.org/dev/protocol/nipopow/) is a generalized term that refers to light clients and side-chains. Light clients, which consist of light nodes and light wallets, are efficient clients that do not need to hold the whole blockchain to verify transactions and enable efficient mobile wallets and faster miner bootstrapping. Clients can interact with each other using only the block headers, thus reducing computational resources. Ergo has enabled NIPoPoW support since the genesis block and they can be applied to Ergo’s blockchain with an easy to implement [velvet fork](https://www.coindesk.com/markets/2018/03/15/velvet-forks-crypto-updates-without-the-controversy/). NIPoPoWs can also be deployed to support PoW and PoS cross chain communication.

*In the next article, we will analyze the topic of Sustainability & Growth of blockchains. By doing that, we will take a look at the history and the current ecosystem; how the legal landscape is evolving, which kind of actors are participating and what kind of problems we may expect to encounter.*

  **Previous Articles:**

[Ergo & Blockchain: Cryptocurrency Sphere](https://ergoplatform.org/blog/2021-10-26-ergo-blockchain-cryptocurrency-sphere/)

[Ergo & Blockchain: Tokenomics and Finance](https://ergoplatform.org/blog/2021-11-05-ergo-blockchain-tokenomics-and-finance/)

[Ergo & Blockchain: Privacy and Security](https://ergoplatform.org/blog/2021-12-02-ergo-blockchain-privacy-and-security/)

[Ergo & Blockchain: Technology and Innovation](https://ergoplatform.org/blog/2021-12-28-ergo-blockchain-technology-and-innovation/)

Ergo & Blockchain: Scalability and Adoption

In this fourth article of the [Ergo & Blockchain series](https://ergoplatform.org/blog/2021-10-26-ergo-blockchain-cryptocurrency-sphere/), we will describe blockchain technology on different infrastructure layers. Currently, there are over ten thousand cryptocurrencies listed on CoinGecko, yet there are only a few building innovative decentralized financial platforms. 

The initial idea behind Bitcoin relied on the promise of commerce protected from centralized points of failure. 

In this article, we will explain technology and innovation on the three layers of blockchain: layer 0, layer 1 and layer 2.

Layer 0 refers to the network/reference layer of the blockchain - also called the off-chain layer. 

Layer 1 is the smart contract layer as well as the on-chain transaction layer. 

Layer 2 can refer to off-chain, on-chain or a combination of both. 

## Network Layer

### PoW and PoS models

Bitcoin revealed a solution to [Byzantine General's problem](https://decrypt.co/resources/byzantine-fault-tolerance-what-is-it-explained) by introducing the proof-of-work mechanism. In this model, mining nodes can validate new transactions by achieving the consensus. The PoW model enables a fault-tolerant decentralized network and creates a new digital money form, known as cryptocurrency. 

*PoW examples: Bitcoin, Ergo, Ethereum, Monero, Litecoin, Ravencoin, Digibyte, ZCash*

Another solution to Byzantine General's problem was through the use of proof-of-stake. In this model, staking pools provide the consensus for applying transactions. There are also different requirements to operate a stake pool such as holding a minimum amount of tokens and requiring specific computers. 

*PoS examples: Cardano, Algorand, Cosmos, Polkadot, Solana, Avalanche, Tezos, Waves*

PoW and PoS are two known solutions for achieving consensus in a public blockchain. However, these two solutions are not without inherent flaws: PoW needs to avoid miner pool centralization and PoS needs to avoid holder (those with staked tokens) centralization. When evaluating their energy efficiency, the PoS protocol design is often considered a greener alternative, whereas PoW relies on larger amounts of electricity to keep the network safe and operational.

**Ergo chose the PoW model for two reasons:**

* Firstly, it guaranteed the execution of a fair launch (equitable access to all coins through mining). 
* Secondly, since the beginning of Bitcoin, PoW has been proven to be a time-tested and secure blockchain model (see: [Lindy Effect](https://en.wikipedia.org/wiki/Lindy_effect)). Ergo's consensus algorithm Autolykos v2 is a GPU-mineable model and it is less demanding on mining gear with lower temperatures. 

### UTXO and Accounts Models

Apart from these two consensus models, there are also two different data-availability models known as the UTXO and Accounts models. In Bitcoin’s whitepaper, UTXO is not mentioned. Instead, researchers later called this the UTXO model because the sum of all one-time Unspent Transaction Outputs represents the whole blockchain. The Accounts model (as described in Ethereum’s whitepaper) represents long-living accounts that are ever-growing on the blockchain. 

Each of those models applies a unique and different logic. Ethereum's model relies heavily on on-chain computations, resulting in network congestion. Bitcoin also has similar problems with network congestion and both of the models apply different solutions to tackle these scalability problems. A direct (and unwanted) solution to the scalability problem is to limit the number of nodes by making high-end hardware necessary to run a node, but consequently this can lead to building a centralized blockchain.

Following Bitcoin, the accounts model of Ethereum has introduced a more flexible blockchain design with smart contract capabilities. Ethereum’s platform offered the ability to produce other tokens on top of it and that is why we witnessed the ICO boom several years ago. Novel ideas such as NFTs, DAOs and DeFi apps were born from Ethereum communities. Most other chains have applied Ethereum’s design with minor tweaks and that's why we see a lot of "new" chains launching with Ethereum Virtual Machine compatibility.

*Accounts model examples: Ethereum, Tron, Solana, Avalanche (C Chain), Binance Smart Chain, EOS*

The UTXO model has more flexibility in its off-chain design by combining both on-chain and off-chain computations to boost blockchain scalability. Similarly, the extended UTXO (employed by Ergo and Cardano) has higher data [composability](https://en.wikipedia.org/wiki/Composability) than the accounts model, making dApps easier to efficiently scale and deploy to other chains. The UTXO model has certain advantages when it comes to scalability and privacy by leveraging off-chain computations and one-time use UTXO addresses.

*UTXO model examples: Cardano, Ergo, Digibyte, Ravencoin, Bitcoin, Komodo, Avalanche (X Chain), Monero, ZCash*

Both Accounts and UTXO models can implement different solutions to data-availability efficiency (known as Layer 2 solutions), such as payment channels, side-chains, state-channels, sharding and/or zk-rollups.

## Application Layer

### Distributed Applications

Bitcoin lacks a Turing complete language and does not employ complex smart contracts. In Ethereum, smart contracts exist mostly on-chain and they are executed on the Ethereum Virtual Machine. In Ergo, some parts of dApps are off-chain, and some happen on-chain. Therefore, Ergo's eUTXO off-chain logic allows for the running of dApp nodes locally on a user's computer and introduces new designs for distributed applications.

Today, an Ethereum developer needs to own a full node that contains all of the network’s data. [Ethereum’s current state](https://etherscan.io/chartsync/chaindefault) is over 340 GB and increases at a massive rate. The developers find solutions by renting virtual computers from firms like AWS or Google Cloud. In return, we see that only a few nodes host all of the so-called decentralized apps. Ethereum's accounts logic is more limited in distributing back-end storage because all the nodes need to be aware of all the blockchain. Therefore, the storage problem continually leads to a more expensive blockchain for individuals.

On Ergo, the eUTXO design introduces a unique way to overcome security and scalability problems on the application layer. Users of applications will be able to own light nodes to directly participate in the governance of an application. By introducing light nodes and light clients and creating truly stateless clients, developers, miners and users can distribute the network with [light-bootstrapping](https://ergoplatform.org/blog/2021-07-19-mining-in-logarithmic-space-nipopow-power-and-ergo/) and increase collaboration on the platform. For more information about off-chain logic and the eUTXO design, please see this [article](https://ergoplatform.org/blog/2021-10-04-off-chain-logic-and-eutxo/). 

### Optional Privacy 

Another topic of cryptocurrency debate is financial anonymity and privacy. Bitcoin addresses are not directly linked to personal identities, therefore the network provides users with a level of pseudo-anonymity. However, users need to rely on centralized coin-mixer services to hide their transactions and maintain privacy. 

Monero, one of the most popular examples of privacy oriented cryptocurrencies, provides a fully private cryptocurrency. Both addresses and transactions are private and no one can extract details of activity on the blockchain. It is a highly privatized cryptocurrency but because it is completely anonymous, it lacks the flexibility to gain mass adoption.

Optional privacy offers flexibility between two extremes. People and organizations need privacy and transparency to various degrees. Ergo, ZCash and Dash are some of the projects with optional privacy features. Optional privacy makes it more possible to implement different structures for non-profit and for-profit organizations. 

Optional privacy enables one to create layers of transparency with cryptographic and decentralized security. This option makes it possible to build a public blockchain with commercial use cases - users and organizations should be able to choose the level of privacy that suits their needs. For example, by using locally hosted ErgoMixers, users have privacy options on top of other Ergo dApps such as ErgoDEX. 

With optional privacy, the degree of privacy on the blockchain can be set and also composed with other applications. The flexibility and composability of blockchain is an incredibly important aspect for gaining mass adoption.

Apart from network and application layers, there is also Layer 2, which includes both off-chain and on-chain components such as side-chains, state-channels, payment channels or private channels, sharding etc. The next article Ergo & Blockchain: Scalability & Adoption, will take a deeper look into Layer 2 networks.

**Previous Articles:**

[Ergo & Blockchain: Cryptocurrency Sphere](https://ergoplatform.org/blog/2021-10-26-ergo-blockchain-cryptocurrency-sphere/)

[Ergo & Blockchain: Tokenomics and Finance](https://ergoplatform.org/blog/2021-11-05-ergo-blockchain-tokenomics-and-finance/)

[Ergo & Blockchain: Privacy and Security](https://ergoplatform.org/blog/2021-12-02-ergo-blockchain-privacy-and-security/)

Ergo & Blockchain: Technology and Innovation

Cryptocurrencies are still a new form of asset class. As more and more people consider investing in the blockchain industry, there is still confusion because cryptocurrencies are not money in the sense of fiat currencies, yet they are also not only software platforms. The cryptocurrency revolution started as a monetary takeover and it has come a long way as an innovative sector.

Initially, with the advent of Bitcoin, we witnessed the creation of "money blockchains.” Until the 2017/18 [ICO Boom](https://hackernoon.com/3-moments-in-history-that-explain-the-ico-bubble-e7c42896ca6f), most of the available cryptocurrencies were just forks of Bitcoin with small adjustments. Many projects changed some of the simple elements in Bitcoin, such as block rewards, block times and/or hard-capped supply. With these changes, people started asking, "Why should we buy Bitcoin? There are thousands of other cryptocurrencies, why not choose them? Everyone can make their own cryptocurrency, what is the difference?"

With the launch of Ethereum around 2015, a new class of cryptocurrency was created - known as “tech blockchains.” After the initial popularization of Bitcoin around 2013, there was also the infamous hack of the Mt. Gox Crypto Exchange. This was just one of the first examples of centralized exchange hacks. Obviously, if globalized non-fiat currency was going to survive, there needed to be new channels to transact and secure the value. Not everyone could find a peer-to-peer transaction channel to directly buy and sell Bitcoin. The answer was clear: crypto-economies needed decentralized financial tools.

In 2017, the first meeting of ["Decentralized"](https://www.decentralized.com/decentralized-2017-overview/) was organized and it was the first time that the term "Decentralized Finance" was established. [Wikipedia](https://en.wikipedia.org/wiki/Decentralized_finance) defines Decentralized finance (or DeFi) as “a blockchain-based form of finance that does not rely on central financial intermediaries such as brokerages, exchanges, or banks to offer traditional financial instruments, and instead utilizes smart contracts on blockchains." 

Today, there are thousands of projects working to provide solutions for decentralized finance. However, not all projects that claim to be decentralized can fully substantiate that claim. Similar to the 2017 ICO Boom, there was a DeFi boom. Many projects tried to replicate existing platforms (mainly Ethereum and Ethereum dApps) and marketed their projects as a solution for the masses. In many cases though, founders and teams were getting around 40% of a token’s supply at launch without providing any innovations. So-called "decentralization" relied on supercomputers to host a node and own a share of the network. As a result, there are many situations where we have centralized blockchains instead of DeFi.

The founder of Ergo Platform, Alex (Kushti) Chepurnoy, has been in the blockchain industry since 2011. In 2018, he created a design model for a decentralized finance platform for contractual money. This design established the use of Multi-Stage contracts on the UTXO model, which is now commonly referred to as the extended UTXO model (eUTXO). The eUTXO model relied on a similar model to Bitcoin but with a new smart-contract language built from scratch known as [ErgoScript](https://ergoplatform.org/blog/2021-06-09-building-ergo-ergoscript/).

Ergo's mining algorithm is called Autolykos and miners have reported that this model puts less burden on graphic cards. It operates at cooler temperatures than the ETHhash algorithm of Ethereum, enabling longer usage of mining hardware. Even people with a simple Raspberry Pi can host a node, thereby making the Ergo Platform more decentralized by allowing a diverse number of actors to participate. There is no need to have to own supercomputers to join the network. 

The Ergo Platform launched without an ICO and no pre-mine so that all the participants were able to start mining on an equal playing field. Approximately 10% of the mining rewards was allocated to the Ergo treasury for ecosystem development over the first two and a half years following the mainnet launch. At the end of the emission schedule, this sum will be equal to only 4.37% of the total hard-capped supply of Ergo. 

ErgoScript is based on Scala (acronym for Scalable Language), a language built for efficiency while maintaining the ability to create robust security. Scala is built to reduce computational lines and overcome JavaScript's high chance of bugs. Because there is a certain degree of difficulty in using Scala, Ergo is building libraries to assist developers transitioning to the platform. These tools are already providing numerous resources for the influx of developers coming to build tools and dApps on Ergo.

As was previously mentioned, Ergo is built on the eUTXO model. Ethereum and many other chains were built on the Accounts Model. The Accounts Model relies heavily on on-chain computations, whereas the UTXO model incorporates the power of off-chain execution on its base layer. The Accounts Model was initially easy to build on for complex applications; however, we are now witnessing the congestion of on-chain computations. For a deeper dive in how Off-Chain logic provides novel models to be implemented on smart contracts, please see the following [article](https://ergoplatform.org/blog/2021-10-04-off-chain-logic-and-eutxo/).

Ergo’s extended UTXO model also contains Sigma Protocols. Sigma Protocols are a subset of Schnorr Signatures - an element included in Bitcoin's recent [Taproot Upgrade](https://ergoplatform.org/blog/2021-11-17-bitcoin-taproot-upgrade-and-ergos-sigma-protocols/). With Sigma Protocols, zero-knowledge (ZK) smart contract implementations such as mixers, privacy wallets and non-interactive side-chains are easily achievable. Instead of building side-chains that rely on 5-10 MultiSig owners, zero-knowledge side-chains on Ergo are possible with the use of NIPoPoWs.

**To sum up:** 

Ergo is not only a currency. 

Ergo is not only a smart contract platform.

Ergo is not a centralized blockchain.

There are promises to be held to create the future's financial systems. Cryptocurrencies should provide financial tools for individuals, scale for the masses and create equal entry grounds for all. The Ergo Platform incorporates novel technical designs on top of human values. The Ergo Blockchain is made to provide efficient and effective tools and dApps for all. Banks and governments have been known to front-run people in the case of technological development but Ergo will continue to support decentralization and equal entry grounds for the masses.

**\
Please see the [Ergo Manifesto](https://ergoplatform.org/blog/2021-04-26-the-ergo-manifesto/) to better understand “Ergo’s Social Contract.”**

Ergo: Building a Decentralized Future

We have been hearing the warnings for a while now and our economies have started to signal the inevitable: rising inflation is here. What does this mean for the value of your money and your financial future? 

Inflation occurs when the purchasing power of a currency is diminished against the rising costs of goods and services. In the United States, [inflation spiked sharply](https://www.usinflationcalculator.com/inflation/current-inflation-rates/) in April and May of this year with rates of 4.2% and 5%, respectively. As of October, inflation now stands at a staggering 6.2%. In Canada, inflation has [soared to a near 20-year high](https://financialpost.com/news/economy/canadas-annual-inflation-rate-hits-4-7-in-oct-highest-since-feb-2003) of 4.7% in October and it stands to reason it will go higher if the USA is already at 6.2%. These are concerning numbers as countries continue to struggle with strategies for reopening economies amidst the continuing COVID-19 pandemic. Ultimately, those who will feel the brunt of inflation will be the lower and middle class as the majority of this population have not earned wage increases to match rising inflation rates. 

Since the inception of Bitcoin, the argument has been made that cryptocurrency can be a solid hedge against rising inflation. Why is this? Cryptocurrencies with a fixed supply can not mint additional tokens and therefore provide scarcity and a store of value. Similar to Bitcoin, Ergo’s tokenomics guarantee that the supply is capped at approximately 97 million ERG (for comparison, Ethereum does NOT have a fixed supply of coins). Over time, inflation (whether gradual or extreme) will decrease fiat’s purchasing power of goods, services and other assets - including crypto. Compounding this issue is the willingness of governments and central banks to print an unlimited supply of money in tandem with what seems to be an infinite government debt ceiling. Think about that for a moment. Who will suffer when this house of cards falls? It is probably safe to assume it will not be the millionaire/billionaire class.

So what are the options? What can you do to diminish inflation's impact on your financial future? Most financial advisors encourage their clients to invest their savings into an asset class. Traditionally those include bonds, stocks, precious metals, etc. Most of these options are pillars of the traditional banking system and therefore continue to be controlled by centralized entities. If you are new to cryptocurrencies, you have no doubt come across discussions about centralized versus decentralized finance (DeFi). To explore that discussion more fully, here is some suggested [reading](https://medium.com/stably-blog/decentralized-finance-vs-traditional-finance-what-you-need-to-know-3b57aed7a0c2) covering some of the principles of decentralized finance.

With cryptocurrency, people have another option and a new way to invest their money. That being said, there seem to be thousands of options when it comes to cryptocurrencies. How do you decide where to invest? 

We recommend you ask some very important questions before you choose a blockchain to invest in:

* What are the tokenomics of the particular crypto?
* What is the circulating supply and is there a fixed cap for the emission schedule of the tokens?
* Was there an Initial Coin Offering? Was a portion of the supply reserved for founders and venture capitalists? If so, how much?
* What is the purpose of the particular blockchain?
* Does the blockchain have projects built on it? What kinds of products do they offer?
* Who are the founders and developers, and what are their goals?
* Is the blockchain decentralized or are there centralized features?
* Are the applications being built open-source and peer reviewed?

One of the proudest features of the Ergo blockchain is that there was no Initial Coin Offering (ICO) and no funds or assets were pre-allocated to any founders or developers (for a deeper dive into Ergo’s tokenomics, please see [the following article](https://ergoplatform.org/blog/2021-11-05-ergo-blockchain-tokenomics-and-finance/)). If you research the launch of other blockchains, you will find many that pre-allocated funds and held ICO’s to raise capital. Ergo had a truly fair launch and is developing a blockchain for the financial needs of the future. The [Ergo Manifesto](https://ergoplatform.org/blog/2021-04-26-the-ergo-manifesto/) is the seminal document highlighting all of the inspirations and motivations for the creation of the blockchain. If one were to attempt to succinctly define the goal of Ergo, it would be to offer financial empowerment to the average citizen in a world where centralized entities have allowed the powerful to weaponize and control the flow of money for their benefit.

Ergo is an answer. Ergo is an opportunity for individuals to reclaim even a little bit of their financial freedom and power. Ergo is a possible solution to inflation and yet so much more than just a store of value.

The developers of Ergo are some of the leading technologists in the blockchain industry, having created smartcontract.com (now Chainlink). They are IOHK alumni (the company behind the creation of Cardano) and were instrumental in projects such as NXT and Scorex. The Ergo blockchain is designed with the UTXO model ledger that Bitcoin operates on but with the added advantage of smart contract functionality. This is called the extended UTXO model.

When you invest in Ergo, you are not just investing in a cryptocurrency, you are investing in a platform that is building decentralized applications (dApps) and financial products for you. You are investing in a platform that is committed to open source, peer-reviewed work and collaborations with other blockchains with like-minded goals (see [UTXO Alliance](https://utxo-alliance.org/)  and [BPSAA](https://bpsaa.vision/)). The future of crypto adoption and a functional blockchain industry will require interoperability and the ability to host a wide array of services between different platforms. Therein lies the real potential of cryptocurrencies. In addition to a store of value, Ergo’s dApps offer competitive financial products and services without a centralized intermediary. Ergo is at the forefront of developing this future with features such as [ErgoScript](https://ergoplatform.org/docs/ErgoScript.pdf), Σ-protocols (see [Whitepaper II](https://ergoplatform.org/docs/ErgoScript.pdf) and [Whitepaper III](https://ergoplatform.org/docs/AdvancedErgoScriptTutorial.pdf)) and [NiPoPoW’s (Non-Interactive Proof’s of Proof of Work)](https://ergoplatform.org/blog/2021-08-26-nipopow-applications-light-clients-and-side-chains/).

These powerful tools are the building blocks that support an already impressive ecosystem of decentralized applications:

[ErgoDEX](https://bit.ly/3oPGwzt)  - A [flagship dApp](https://ergoplatform.org/blog/2021-07-21-ergodex-a-cross-chain-workhorse/) on Ergo - it is the first decentralized exchange on the UTXO model with cross-chain capability with Cardano.

[SigmaUSD](https://bit.ly/3nFRKHx)  - A novel and innovative solution for a crypto-backed algorithmic stablecoin protocol.

[ErgoRaffle](https://bit.ly/3DI15nT) - A decentralized pseudo-crowdfunding application.

[Ergo Auction House](https://bit.ly/3DHCorr) - Ergo’s NFT hub.

[ErgoUtils](https://bit.ly/3kYyT8V) - The dApp for the creation of Ergo NFT’s and new tokens.

[Oracle Pools](https://bit.ly/3kYfIMm) - Messengers between Ergo blockchain and the outside world.

These are just a few of the dApps currently deployed on Ergo. For a comprehensive overview of the ecosystem please visit [Sigmaverse](https://bit.ly/3kRCqpo) and explore the dApps that are in development from the most recent [ErgoHack](https://ergoplatform.org/blog/2021-10-21-ergohack-ii-results/).

As this article attempts to convey, Ergo is designed to be a solution for financial empowerment. With rising inflation and the uncertainty that accompanies that reality, we believe that Ergo and the tools it is building will become increasingly more important in times of financial uncertainty. If you have more questions about the possibilities of Ergo, we encourage you to explore our [website](https://ergoplatform.org/en/) and [ErgoWiki](https://bit.ly/3x6Iak8) and get to know the community on [Telegram](https://t.me/ergoplatform), [Twitter](https://twitter.com/ergoplatformorg) and [Discord](https://discord.com/invite/kj7s7nb). The Ergonaut community is one of the best aspects of Ergo and they are the reason we are building this blockchain. Ultimately, we are stronger as a community and the feedback we receive informs us about the tools and dApps we need to focus on to meet the financial needs of society.

Ergo, Inflation and the Importance of a Store of Value

The recent Bitcoin [Taproot Upgrade](https://www.research.arcane.no/blog/what-is-taproot-the-next-bitcoin-upgrade), includes numerous changes that are encouraging many debates. The Taproot Upgrade consists of three Bitcoin Improvement Proposals (BIP): Schnorr Signatures (BIP340), Merkelized Abstract Syntax Tree (MAST-BIP341) and Tapscript (BIP342). With this upgrade, Bitcoin will allow higher scalability, privacy and a flexible smart contract design. 



Ergo has also based its design on [Sigma Protocols](https://ergoplatform.org/blog/2020_03_16_ergo_sigma/), otherwise known as Generalized Schnorr Proofs. Ergo launched with scalability and privacy designs like NIPoPoWs that were similarly envisioned for Bitcoin. Additionally, Ergo leverages the power of the extended UTXO model and the longstanding security of Proof of Work.



BIP340 brings the Schnorr Signature scheme, which has been debated among Bitcoin developers since 2018. Schnorr Signatures are considered to have a high level of security while maintaining a fast verification process. Schnorr Signatures make complex transactions look like regular transactions, thereby making various transactions hard to distinguish.



BIP341 implements a Merklelized Abstract Syntax Tree ([MAST](https://bitcoinops.org/en/topics/mast/)) which allows one to compile a bunch of hashes under a single hash. This structure allows the spender to choose some conditions to fulfil and the other conditions will not be revealed. MAST allows the verification process to happen more simply, increasing expressiveness and privacy without weakening security.



Bitcoin’s previous pay to script hash (P2SH) design was limited in smart contract privacy. When using a multi-sig contract, the contract script was revealed after a transaction. This would reveal information about the users while simultaneously adding bloat to the blockchain. The newly implemented MAST design allows hiding this extra information embedded in the contract. With Schnorr proofs, Taproot can even hide evidence that the MAST structure existed at all.



BIP 342 [Tapscript](https://github.com/bitcoin/bips/blob/master/bip-0342.mediawiki#cite_note-9) updates the Bitcoin Script, implementing the Schnorr and MAST upgrades mentioned previously. Tapscript also removes the 10,000 bytes script size and the number of opcode limits, thereby improves signature hashing and enables more expressive scripts. 



The addition of BIP340 and zero-knowledge proofs for Bitcoin enables interoperability between Ergo and Bitcoin, allowing for private cross-chain atomic swaps and potentially sidechaining in the future. 

While Ergo is not exclusively a privacy blockchain, it’s Sigma Protocols allow zero-knowledge privacy applications which use Schnorr Signatures to provide verification. This allows Layer 2 applications such as Non-Interactive Proofs of Proof of Work ([NIPoPoWs](https://nipopows.com/)) and side-chains to operate anonymously on Ergo. 



Ergo’s language, ErgoScript, already includes what is envisioned for Bitcoin - it employs a similar structure but with different techniques by implementing a more expressive smart contract language with UTXO and PoW elements, Ergo aims to be the platform for secure, complex, scalable and private decentralized finance applications. Bitcoin can leverage Ergo’s safety with its interoperable DeFi capabilities

Bitcoin Taproot Upgrade and Ergo’s Sigma Protocols

The **[Ergo NFT Auction House](https://ergoauctions.org/)** will soon be upgraded to a version that will feature a new user interface as well as important features for protecting artist royalties. The NFT developer team is firmly committed to improving the Ergo NFT experience for both artists and collectors.

Additionally, these updates will introduce artist pages as a new feature. The developer team is also working on a solution that will address and prevent the copycat art issuance problem on Ergo’s blockchain. 

We are witnessing a surge in interest from artists in our community and it is vitally important that they are properly protected and compensated through copyright solutions and royalties, respectively. This is especially important as we push the Ergo Ecosystem further towards mainstream adoption. Ergonauts are launching original NFT series’ on the Ergo Platform and members of the Cardano NFT community have started to list their projects in the Ergo Auction House.

NFTs on Ergo use the extended UTXO model for proof of authenticity. Users can issue potential NFTs using the Ergo Auction House or Ergoutils with their non-custodial wallets (like the Yoroi or Android Wallet). Issued artworks on these platforms are uploaded to IPFS servers and then live on decentralized databases. 

As the Ergo Ecosystem continues to expand, we want to thank all the Ergonauts who support art and the decentralized marketplace for Ergo NFT’s. If you are new to Ergo, here are some of the latest NFT projects you can find on the ecosystem.

The **Ergnomes** team is one of the earliest developers of Ergo NFTs. They issued 477 unique Ergnomes on their first series and subsequently have issued 3000 Gnomekins this Halloween. You can check out the project on the [Ergnomes](https://ergnomes.io/) website, NFT Auctions or social media. The most expensive sale from their series was Alex Chepurnoy’s Ergnomes NFT which sold for 1420 ERG.

The next project, **CyberCitizens** is an extension of the team's first project: ErgoPixels. After their succesful first drop, they rebranded as Cybercitizens to fit with the theme and style of their vision. There are 2080 unique CyberCitizens and authenticity can be verifiable on their catalogue. They are planning their next drop after the Auction House V2 update.Please visit their [website](https://cybercitizens.io/) for more information.

**Cypherkics** are the first sneaker centered NFT project from the Cardano NFT ecosystem. They made a Halloween NFT airdrop in collaboration with ErgoDEX. The team is mainly active in the Cardano NFT (CNFT) space but they also have close relations with the Ergonauts community. You can check out their project on [Twitter](https://twitter.com/Cypherkicks).

We encourage all artists and collectors to explore our Ergo NFT Auction House where commission fees are negligible. It costs only 0.1 ERG to mint an NFT and there is a near-zero cost for transactions. NFT’s on Ergo are secure and sustainable with IPFS decentralized storage. 

For a complete listing of all available NFT’s, please visit [Ergo Auction House](https://ergoauctions.org/). With the upcoming upgrades to Auction House V2 quickly approaching, we look forward to even greater demand and traffic for Ergo NFT’s!

Ergo: New Standard For NFTs

The scaling aspect in Ergo Platform's design has been a high priority since the mainnet launch. In order to gain mass adoption, a blockchain should be able to scale. Scalability refers to the efficient use of computational resources and high throughput. Ergo incorporates various elements to achieve near-infinite scalability. The design is built on the extended UTXO model with its novel language, ErgoScript, relying on peer-reviewed academic research. With years of research, Ergo developed various features such as stateless clients, NIPoPoWs and UTXO based smart contracts.



Initially, Layer 0 is the reference layer where nodes are connected. This is the peer-to-peer infrastructure layer. The Ergo Node Client has improved a lot since v4.0.8 and still has 20 times more room to develop. [Light bootstrapping](https://ergoplatform.org/blog/2021-07-19-mining-in-logarithmic-space-nipopow-power-and-ergo/) using NIPoPoWs are also planned to be integrated via a Velvet soft fork.



On Layer 1, the application layer, Ergo supports on-chain scalability solutions such as Sharding. Aside from Sharding, the extended UTXO model allows most of the transactions to be executed off-chain and reduces on-chain network load.



In the end, there are Layer 2 scaling solutions that refer to off-chain layer scaling solutions. There are multiple off-chain solutions such as [Hydra](https://iohk.io/en/research/library/papers/hydrafast-isomorphic-state-channels/) and sidechains to compress blockchain bloat and provide similar benefits like zk-rollups. Ergo can also be compatible with other UTXO Layer 2 solutions such as Bitcoin’s Lightning Network.



Stateless clients allow for both light wallets and light miners to run with full node security. NIPoPoW implementation via Velvet soft forks will enable infinite sidechains on top of Ergo. 



Ergo utilizes "[Storage Rent Fee](https://ergoplatform.org/blog/2021-07-09-cryptocurrency-fees-a-solution-to-unreasonable-state-growth/)" to prevent spam and recirculate unused data bytes, known as dust. Storage Rent Fee helps to clean the network pollution and encourages users to be more active.



Ergo Platform has a research-based approach for long-term success and it has a lot in the toolbox to tackle the scaling problems that will come in the future.

Ergo Ecosystem: Scaling Solutions

## Advantages of eUTXO

\
There is a significant difference between the account and eUTXO models. In the account model, all the logic is on-chain but this has been found to cause scalability issues. In the eUTXO model, only the smart contract validation itself is performed on-chain while other parts of the smart contract are off-chain. 



In order to clarify this, consider the off-chain part as a black box which reads the blockchain status (UTXOs), runs all the computations, and finally generates one or more txs (transactions). These txs (results of the off-chain part) are then sent to the blockchain to be verified.



The blockchain verifies the txs and if the txs requirements are satisfied they will be mined, thereby changing the status of the blockchain (UTXO set). 



As a result, only smart contract validation is performed on-chain and all other logic is off-chain. This means tx validation can be incredibly efficient and scalable - a major advantage of the eUTXO model.



The issue of scalability is one of the main reasons Ethereum is attempting to push transactions to Layer 2/Sidechain scaling solutions that are governed by off-chain code. In essence, the solutions Ethereum is exploring in order to address its scalability concerns mimic the eUTXO model in practice.

 

For the most part, there is industry consensus that on-chain logic is decentralized by nature, and therefore superior. What about the off-chain logic? Can off-chain logic be distributed? 

 

In eUTxO, off-chain logic can be written within a range of completely centralized to completely decentralized. For example, in ErgoMixer the off-chain part is decentralized. You run it on your computer but users also have the ability to run their own off-chain logic. Off-Chain logic can be distributed or localized and run by each user, thus ranging from centralized to widely distributed. 



## ErgoDEX Distributed Bot Solution

ErgoDex has been testing, and will implement, a bot solution that allows the distribution of offchain logic to be run concurrently. While contrary to Ergomixer’s use of off-chain logic (where each user is running their own individual off-chain logic), the off-chain bots can be distributed and bot-runners can earn an execution fee. This execution fee is similar to a transaction fee and it will be preset before funds are sent.\
\
This incentivizes actors to run these distributed bots, as well as gives users clarity with regard to pricing. This way, every actor has an equal chance to gain a portion of the network with economical incentives. The off-chain code will become more and more decentralized as the usage of the platform increases.\
\
The additional revenue created by users running bots seems to integrate particularly well into smaller mining pools, as well as single pool operators in Cardano. It is our goal to work with these parties from the beginning to encourage decentralization.  



![](https://lh3.googleusercontent.com/kzEchHe0C8NMk5y-yNuouF1YbrtUi7onuve7NvzBVyWMOa6WTQ5s9Ft4T7bVJ3cbooIECSAeazqwIwmc-lO0ya6hjC5poyxwFLucTuznTX52_jwAwsbLaIfYTxDrKhLyqFTKG7bK=s0)



 



Decentralization is achieved depending on the number of actors that chose to run off-chain bots. There is also additional economic incentive for miners to participate in this solution while honoring the trust and transparency that proof of work provides. 



## eUTxO Assumptions

\
As eUTxO continues to roll out, we will witness some dApps where the off-chain logic is not necessarily decentralized. The question will be whether or not this is an issue? It will depend on the function of each unique dApp and if the users are aware of the assumptions they need to make. These dApps can also choose a model that decentralizes or distributes off-chain logic. But is this necessary? My guess is probably not, depending on the function of the dApp.



Transaction verification will still be on-chain, however the incentives may not be in place to encourage users to run this logic in a decentralized fashion. I do not see this being an issue when taking into consideration that some dApps may be for a special purpose or provide a very simple service.



However, the eUTxO model does create some additional assumptions that users need to be aware of and this is why Ergo is in the process of putting together the KYA (Know Your Assumptions) initiative.



The KYA would function similarly as a “Terms and Conditions Agreement” and is 

designed to inform users about trust and cryptographic assumptions of a blockchain, contract, update possibilities, level of control by protocol masters, etc.

 

The goal of a KYA would be to prevent rug pulls, scams and protect investors. 



With regard to off-chain logic, understanding KYA is very important. Currently, users trust security audits of blockchains/dApps, but an audit just certifies that logic is intended by the contract. An audit is not a proof of security in all aspects, just the proof of a contract's intention.



There needs to be KYA regarding the potential for updates of both on-chain and offchain logic because the distribution of off-chain logic indicates the level of trust each actor is placing on the dApp. Custodial power between parties may potentially be an important assumption to understand as well. 



The reality is all of these assumptions are important to on-chain logic. The only difference is off-chain logic does add an additional layer of complexity that will need to be addressed by both eUTXO and account model blockchains. Off-chain logic includes L1 (Layer 1) dApps, like ErgoDEX, as well as L2 (Layer 2) models like side-chains.

Off-chain Logic and eUTXO

## Tokenomics:



Decentralization was one of the most important priorities for Ergo’s launch. There was no pre-mine and there was no pre-allocation to an ICO or Venture Capital investments. Additionally, only 4.37% of the total ERG supply is gradually delegated from the block rewards to the Ergo Treasury.\
\
Ergo mining will end in 6 years and from that point onwards, miner rewards will be supplied by transaction fees and storage rent from unused old data bytes in the blockchain.

## Mining:

Autolykos has several differences from Bitcoin's PoW. It does not allow ASIC miners, and is mined with 4-8 GB GPUs, therefore it is easier for the community to acquire the mining equipment.



NIPoPoWs can be used to increase decentralization with non-interactive mining pools. They also allow light miners through the implementation of logarithmic space mining. By mining in logarithmic space, miners will not need to store the whole blockchain data and they can bootstrap using just block headers.



## dApps

Ergo is built for secure and functional decentralized finance for everyone. Decentralized applications on Ergo are governed with smart contracts and they are immutable and trustless. ErgoDEX, Oracle Pools, SigUSD, ErgoMixer are the flagship prototypes of UTXO based decentralized finance. Users can explore all of Ergo’s dApps at [sigmaverse.io](http://sigmaverse.io), the dApp hub of the Ergo ecosystem.



Users can interact with the dApps with non-custodial wallets like Yoroi or mobile wallet. 



## Non-Interactive Proofs of Proof of Work:

Non-Interactive Proofs of Proof of Work ([NIPoPoWs](https://nipopows.com/)) have been implemented on Ergo since the genesis block. NIPoPoWs are short stand-alone strings that indicate a selected pool of blocks to verify if an event happened on a proof-of-work blockchain. They interact by using only block headers, without needing to download the whole blocks.

NIPoPoWs also allow for a flexible off-chain computations layer, also known as a side-chain. Sidechain applications can provide second layer scalability solutions, light clients and light nodes. They can also be implemented for cross-chain interoperability. 





## Stable Coins

Unlike the protocols using the collateral-debt positions (CDP) model, such as DAI, Ergo has created the [Sigma USD](https://sigmausd.io/#/) stablecoin protocol based on the reserve-backed model. The CDP model can cause cascading liquidations during extreme volatility, whereas the reserve-backed model will not face this issue when keeping the coin pegged to one dollar.



SigUSD is backed by SigRSV reserve tokens with a predefined locking mechanism. The protocol will not allow for further SigUSD minting if SigRSV tokens can not hold the 400% reserve ratio. Likewise, SigRSV minting is not possible if the reserve ratio goes beyond 800% This is to protect reserve holders from malicious actors during ERG price volatility.



## Extended UTXO Model

Ergo employs many of the tested and established features of Bitcoin while also implementing advanced new cryptographic features based on peer-reviewed academic research.



Ergo is developed on Bitcoin’s UTXO model with the implementation of Multi-Stage Contracts. Ergo’s extended UTXO (eUTXO) model can provide parallel computations, stateful contracts and enhanced cryptographic features as well as a whole host of other applications.

How Ergo Changes Crypto

**Non-Interactive Proofs of Proof of Work** ([NIPoPoWs](https://nipopows.com/)) are important for two essential reasons: Light Clients and Side Chains. These two components are essential for clients and nodes in order to facilitate easier onboarding to the blockchain. A decentralized network is inherently inefficient because of the randomness mechanism in a synchronous network, that is to say every time a transaction (TX) occurs on the network, a couple of random nodes must process the TX to prove and secure its reliability. When put into perspective, that is an enormous task on a global scale. There can be billions of transactions and it is plausible that many of those are from contributors operating with low bandwidth.



# Light Clients



**Light Clients** (aka [SPV](https://ergoplatform.org/blog/2020_05_1_spv_security/)) are important when considering the hurdles cryptocurrency faces with mass adoption. Most crypto users do not have the necessary tools to run a full node. Running a full node means having a strong processor with high electricity wattage and more than a hundred gigabytes of memory to store the entire blockchain. Light clients are useful because they enable verification with a limited supply of data providers (nodes) and therefore significantly reduce the amount of data storage and bandwidth needed for everyday users.



The use of light clients with the implementation of NIPoPoWs makes it possible to interact with the blockchain through block headers by using only a couple of kilobytes. Verifying whether a transaction happened on the blockchain becomes simplified. NIPoPoWs can help people to interact with the blockchain through the use of more efficient and convenient mobile wallets.



# Side Chains



**Side chains** on the other hand are a completely different component of blockchain. They are incredibly useful for various elements such as private chains, scalability improvement and cross-chain interoperability. [Kushti mentioned](https://youtu.be/QCMpVRVrHqI) that he will release a side-chain “cookbook,” entitled Ergo-Meta, in the next months. 



One application of NIPoPoWs that we have described in a previous article deals with [logarithmic space mining](https://www.youtube.com/watch?v=s05ypkSC7gk). Logarithmic space mining allows for “light miners.” Similar to light clients, light miners can bootstrap with block headers without downloading the whole blockchain. In a blockchain, it is also possible to store just a few necessary blocks to verify the whole blockchain. This essentially eradicates the need for miners to store all of the blockchain. The integration of logarithmic space mining in Ergo is possible via velvet (soft) forks, therefore preventing the need for painful hard forks.



Another application of NIPoPoWs was proposed in the first [ErgoHack](https://curiaregiscrypto.medium.com/ergohack-results-f7d72711a9db) by a team called SmartPools. SmartPools’ proposal aims to increase the **Nakamoto Coefficient**, a metric for calculating the decentralization of the given network. In our case, the proposal aims to increase the decentralization of the Ergo Platform by bootstrapping mining entities with collateralized smart contracts. The purpose here is to provide returns for non-miner investors and prevent big GPU farms from taking control of the system.



The most well-known example of NIPoPoWs is the implementation of second layer blockchain. Second layers are useful for interacting with different blockchains by increasing scalability and creating private side-chains for enterprise-grade applications. Second layers create blockchains on top of the main blockchain for different use cases. Because transactions can happen on these second layers without constant synchronous updates, the network load can be lowered substantially by keeping everything on the main chain all the time.

**\
The Ergo blockchain has supported NIPoPoWs since its genesis, yet their use cases are still in its infancy. We continue to develop this field of research with our partners at [IOHK](https://iohk.io/) and [EMURGO](https://emurgo.io/) and we expect their application to increase with continued contributions from the community developers.**

NIPoPoW Applications: Light Clients and Side Chains

*"Ergo is the spiritual successor to Bitcoin."* - Charles Hoskinson

Bitcoin and Ethereum are the most well known ledger models in blockchain and they are designed on the UTXO and Accounts models, respectively. Bitcoin is based on the Unspent Transaction Output model (UTXO), a model where the owner's coins are stored in a set of one-time UTXO outputs (boxes) that are consumed (or destroyed) when a transaction is made and some new UTXO outputs are created. On the other hand, Ethereum uses the Accounts Model where the owner’s coins are stored in long-living accounts. These Accounts never get deleted and the necessary storage increases over time.

Ergo is built on the eUTXO (extended unspent transaction output) model which is an extension of Bitcoin’s UTXO model, but with the implementation of [Multi-Stage Contracts](https://www.youtube.com/watch?v=g3FlM_WOwBU) and native token support. Before we dive into Ergo’s novelties, we should take a look at the differences between the UTXO and Accounts models. 

In Bitcoin, the set of all UTXO’s represents the state of the blockchain. In Ethereum, the sum of all Accounts also represents the whole blockchain but with a twist: these Accounts are to be used over and over again - essentially forever. This has the potential to lead to possible security issues since transactions are easy to track. However, Ethereum was not originally built with privacy at the forefront of development. The Ethereum whitepaper focuses on smart contracts - the contracts that encode a specific set of rules for automated on-chain applications.

Bitcoin functions mainly with a single application: as a decentralized monetary system. Bitcoin Script has been found to be not very suitable for building new ideas on top of it. It is built with a robust design but with non Turing-complete language in order to guarantee each transaction is verifiable with a predictable amount of computation.

Ethereum is not exactly Turing-complete either (take a look [here](https://media.consensys.net/ethereum-isnt-turing-complete-and-it-doesn-t-matter-anyway-625061294d3c)), yet it emulates Turing-completeness via the Ethereum Virtual Machine. Ethereum uses “Gas Limit per block” as a solution to prevent the halting problem of Turing-complete machines by predefining a work time for transactions. The account model was chosen specifically to provide more expressive smart contracts with an easy-to-implement front-end. In opposition to Ethereum, Bitcoin’s UTXO model is more beneficial for privacy and has a simpler semantic model for efficiency improvements. 

Ergo utilizes the UTXO model for enhanced privacy & scalability options while also employing expressive smart contracts for DeFi applications. In order to achieve this robust level of functionality, Ergo was built from scratch with its own native language, [ErgoScript](https://ergoplatform.org/blog/2021-06-09-building-ergo-ergoscript/). The UTXO model also allows for parallel transactions which we believe is an important feature for the DeFi platforms of the future. 

It is important to note that the ErgoScript language itself is not Turing-complete either. However, Ergo introduces read-only inputs (UTXOs that can be used without spending) and when this component is combined with block height, [self-replicated contracts](https://arxiv.org/pdf/1806.10116.pdf) can be built and Turing-complete systems on Ergo become possible.

Scalability is of the utmost priority for Ergo because in order to provide a powerful smart contract platform, the network needs to be able to handle a vast number of transactions.

Ethereum can not scale since Ethereum’s script language, Solidity, is influenced by JavaScript. JavaScript is an easy-to-use object programming language however its code is too heavy to handle mainstream adoption. ErgoScript’s language is influenced by Scala, which is short for Scalable Language.  Most of Java’s features can be executed with only a few codes in Scala. Scala is also perfect for immutable objects, therefore an immutable blockchain environment is easily sustained. 

Following the “better Bitcoin” ICO boom in the crypto industry, Ergo is building a blockchain that exploits the full potential of the UTXO model.  Most other UTXO based projects were perplexed about how to implement smart contract applications. 

Ergo took inspiration from Bitcoin’s decentralized emission style by not issuing an ICO and not allowing any pre-mining before launch. Years of research and development by the Ergo team have shown that smart contracts on the UTXO model with ErgoScript create a network that is easily scalable and functional for DeFi applications.

## We Are On The Hunt!

 

If you are a developer or know anyone who codes, we are currently looking for talented coders to join our team! Interested coders are also welcome to join our second ErgoHack! We are currently planning and organizing our second Hackathon for this September!

 

Check our [GitHub](https://github.com/ergoplatform/ergo) and [Whitepapers](https://ergoplatform.org/discover/#Documents/) to get to know us and join our community on [Discord](https://discord.gg/kj7s7nb) and [Telegram](https://t.me/ergoplatform) to get in touch with the Core Team!

Ergo: Advancing on Bitcoin

Ergo is built on the UTXO model, a model that Bitcoin first introduced. This is a model where a total of the Unspent Transaction Outputs (immutable and short-lived data bits) are created after each transaction. It is a completely different approach than Ethereum’s long-living mutable Accounts. Ethereum’s Accounts operate on a shared context where every Account needs to be checked - this necessity can cause drawbacks on storage utilization. 



UTXO is used by miners (they are the blockchain validators, or consensus providers) to check if a unique private key has access to certain coins. The privacy and scalability of the UTXO model is attractive, however the genesis design of Bitcoin makes it more difficult to implement smart contracts. The UTXO model has many advantages, yet it is a surprisingly underdeveloped area compared to the smart contract applications on Ethereum’s Accounts model. Ergo’s UTXO model on the other hand, allows [Multi Stage Contracts](https://link.springer.com/chapter/10.1007/978-3-030-31500-9_16) to provide zero knowledge cross-chain operations through the implementation of [NIPoPoWs](https://nipopows.com/). Core developer Alex Chepurnoy has extensive experience with UTXO’s features and PoW security benefits so he focused his research in this area.



The term UTXO indicates the amount of cryptocurrency left unspent after spending some amount of it. In a UTXO based blockchain network, an unspent transaction output is the input for the next spending activity. Therefore after every spending activity, a new UTXO is created which will later be used as input again in new spending activity. So UTXO is used as input and new UTXO is created as output. This is the notion of spendable UTXOs that Bitcoin is based on. However, Ergo’s contribution to UTXO based systems introduces read only UTXOs which enable the formation of UTXO transaction chains.



Robert Kornacki (from [EMURGO research](https://github.com/Emurgo/Emurgo-Research/blob/master/smart-contracts/High%20Level%20Design%20Patterns%20In%20Extended%20UTXO%20Systems.md)):



> “Smart contract enabled UTXO systems have a lot of potential for revolutionizing smart contracts as a whole. …… UTXO-based smart contract protocols utilize spending path oriented design patterns such as linear, branched, recursive, outsourced and parallelized. These set the stage for dApp developer to create reliable and performant smart contracts, with even more high level design patterns yet to be uncovered in the coming future.”



## Bitcoin’s UTXO Model



Even though Bitcoin is the pioneer of decentralized currency, it has some [flaws](https://www.the-blockchain.com/docs/Ethereum_white_paper-a_next_generation_smart_contract_and_decentralized_application_platform-vitalik-buterin.pdf). 



Issues include:

\
Lack of Turing-completeness: Turing-completeness refers to loops in a system through the introduction of “if” statements. It is not difficult to introduce loops, however loops can cause storage inefficiency due to infinite repetition of the underlying code. Bitcoin is made with a simple and secure design. It is constructed to serve as a money transfer system so a non-turing complete system was chosen to avoid infinite loops during transaction verifications.



Value-blindness: One Bitcoin is one Bitcoin, that is to say, there is no way that the Bitcoin network can understand the underlying value of Bitcoin in other denominations. This is an obstacle when trying to bridge traditional and decentralized financial systems in a trustless way, where oracle smart contracts are needed to provide decentralized data feeds. Borrowing, lending and automated market making algorithms all rely on trustable data to function. Even though Bitcoin is the pioneer of cryptocurrencies, it lacks the ability to connect these traditional and decentralized financial systems. 



Lack of state: In Bitcoin, UTXO can either be spent or unspent and it does not support stateful contracts; so creating any other state beyond that, such as withdrawal limits or buy-back orders, is not possible. This means that UTXO can only be used to build simple and one-way contracts. More complex “stateful” contracts such as decentralized organizations, meta-protocols or withdrawal limits can not be implemented. Bitcoin’s binary state and value-blind form would therefore lack the ability to power the future of finance.



Blockchain-blindness: Bitcoin’s UTXO is blind to blockchain data such as the nonce (number only used once, or 2FA codes) and previous [hash](https://www.investopedia.com/terms/h/hash.asp) (a specific value of any transaction in blockchain, which is the value that miners are trying to define). This severely limits applications for gambling, lottery and similar categories where randomness inside of a blockchain is needed.



## Multi-Stage UTXO Model



[Extended UTXO](https://iohk.io/en/research/library/papers/the-extended-utxo-model/) systems enable [Turing complete](https://arxiv.org/abs/1806.10116) smart contracts. This is a novel innovation that allows the latest generation of blockchains to reclaim the original model that Bitcoin used, but with a lot more power.



The Extended UTxO Model (eUTXO) preserves Bitcoin’s structure while adding support for more expressive smart contracts. Ergo has a similar approach to Cardano’s eUTXO with its own Multi-Stage UTXO model that introduces UTXO chains. 



Multi-Stage Contracts provide an extension to Bitcoin’s UTXO model with on-chain computations. Ergo has implemented read-only inputs that allow interaction through only block headers. This improves Ergo's ability to operate on [Level 3](https://www.youtube.com/watch?v=g3FlM_WOwBU&t=2s), enabling non-interactive parallel computations with the use of NIPoPoWs in the UTXO model. 



Ergo’s extended approach to the UTXO ledger model, where read-only inputs and a Turing complete enriched context is implemented, can provide near-infinite scalability with strong privacy and security features. Zero-knowledge applications such as collective spending vaults on Ergo’s UTXO are more efficient than on a shared mutable state like Ethereum’s.