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Virtual Transaction Output (VTXO)

Virtual Transaction Outputs (VTXOs) are the fundamental building blocks of Arkade’s execution layer. They are programmable, offchain objects that mirror Bitcoin’s UTXO structure while expanding their capabilities within Arkade’s virtual execution environment.

VTXOs are presigned Bitcoin transactions secured by a Taproot script with two distinct spending paths:

Exit Path (Unilateral Control): This path is exclusively controlled by the VTXO owner, enabling them to move their funds onchain at any time without requiring permission or cooperation from the Arkade operator. This ensures true self-custody.

Collaborative Path: This path requires a cosignature from the Arkade Signer in addition to the owner’s signature. This is the default path used during regular Arkade operations, enabling instant, offchain transactions within the Virtual Mempool.

VTXOs operate like Bitcoin UTXOs but with lower latency and cost. Each VTXO carries a discrete Bitcoin value and associated spending conditions encoded via Arkade Script.

VTXO vs. Traditional Account Models

Unlike account-based systems that maintain a global state ledger, Arkade’s VTXO model requires no global state machine, only local transitions between VTXOs. This enables parallel execution across independent transaction branches without the bottlenecks common in account models, where operations must be serialized to maintain consistent state.

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Onchain Anchoring via Commitment Transactions

Transaction batching is the foundation of Arkade’s design. Rather than each user having their own onchain output, Arkade consolidates multiple users’ ownership claims into a single output called a Batch Output using Commitment Transactions.

Commitment Transaction. A Commitment Transactions is the single onchain footprint that underpins the entire Arkade protocol. When users choose to anchor their offchain activity to Bitcoin, the Arkade Operator coordinates a Bitcoin transaction that creates a Commitment Transaction containing two outputs: a Batch Output enforcing ownership claims through a virtual transaction transaction tree, and a Connector Output that enables atomic batch swaps.

Batch Output. A Batch Output is locked to a Taproot address with an n-of-n MuSig2 internal key, with all participants as cosigners, along with a Taproot script spend path that allows the Arkade Operator to unilaterally spend after the Batch Expiry. Each user’s claim is represented by a VTXO, secured through this combination of multisig and presigned transactions. Once the Commitment Transaction structure is finalized, a virtual transaction tree is created that splits the Batch Output into individual VTXOs at its leaves.

Virtual Transaction Tree. The transaction tree organizes virtual transactions in a hierarchical structure that enables individual users to exit without affecting other participants’ VTXOs. When a user needs to exit unilaterally, they broadcast only the transactions along their specific VTXO path. Each virtual transaction in the tree is cosigned by the respective VTXO owners and the Arkade Signer.

Batch Expiry. The Taproot script spend path is called sweep path. It allows the Arkade Operator to claim all VTXOs of the entire output after a predetermined expiry period without having to broadcast the respective transactions onchain. This sweep mechanism is essential for operator liquidity management, as operators must front capital to fund new VTXOs while users forfeit existing ones during batch operations.

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Offchain Execution in the Virtual Mempool

The Virtual Mempool is Arkade’s offchain execution engine, a high-throughput environment where transactions flow without the constraints of block times or confirmation delays.

Transactions in the Virtual Mempool form a directed acyclic graph (DAG) that enables parallel execution of offchain transactions. Unlike Bitcoin’s mempool, which processes transactions in a linear queue for block inclusion, Arkade’s DAG structure explicitly encodes transaction dependencies.

This design allows independent transaction chains to progress concurrently, unlocking massive throughput improvements. By eliminating the need for a global state or sequential processing, the virtual mempool creates a scalable foundation for Bitcoin-native applications.

When a wallet broadcasts a transaction to the Virtual Mempool, the Ark Operator validates it against the current VTXO set, forwards it to the Arkade Signer who cosigns it if valid, and immediately updates the graph. This gives users instant preconfirmation without waiting for block inclusion. The transaction’s outputs become immediately spendable, enabling real-time execution of financial applications.

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Offchain Programmability powered by Arkade Script

Arkade Script is an enhanced scripting environment that extends Bitcoin Script with additional capabilities for expressive, stateful contract logic. It introduces new primitives for introspection, arithmetic, and asset operations, enabling developers to build complex offchain applications directly tied to Bitcoin outputs. While Bitcoin Script prioritizes minimalism and security, Arkade Script expands the design space for preconfirmation computation without requiring any changes to Bitcoin consensus. All contracts ultimately settle via standard Bitcoin scripts, ensuring compatibility with Bitcoin’s trust model.