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Bitcoin Script and the UTXO Model

Bitcoin tracks ownership through Unspent Transaction Outputs (UTXOs). Each UTXO locks value to a script, typically requiring a signature to spend. Transactions consume UTXOs as inputs and create new ones as outputs. This model is local and composable: validation doesn’t depend on global state. It naturally supports a DAG of transactions.

However, UTXOs must be confirmed onchain. This means waiting for block inclusion. Transactions in the Bitcoin mempool have ancestors limits and other relay policies that can limit long chain of UTXO contracts, and the fee model acts as a fee auction. Senders overpay to outbid others. Payments are delayed and unpredictable.

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Bitcoin Mempool and Fee Market

Pending transactions wait in the mempool. Miners choose which ones to include, prioritizing by fee per byte. Since block space is scarce and block times are slow (10 min), users compete in a fee auction. This introduces delays and unpredictable costs, making Bitcoin unfriendly for real-time applications.

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Ark and Virtual UTXOs (VTXOs)

Ark is a Bitcoin-native transaction batching protocol that introduced Virtual UTXOs (VTXOs) and Batch Settlements. It allows users to transact offchain while retaining full custody of their funds, with deterministic exit paths back to Bitcoin L1.

VTXOs represent spendable claims enforced by pre-signed Bitcoin transactions. Users transact offchain in the same model: spend VTXOs, create new ones. An operator signs these virtual transactions, that can be chained and project a state that can be settled in the next Bitcoin block, in a batched form.

VTXOs remain offchain until the user anchors them in a Bitcoin batch output. Until then, they rely on the operator’s integrity.

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Ark’s Preconfirmation State

A transaction becomes preconfirmed when the Ark operator co-signs it. The receiver can then use the resulting VTXOs for further offchain transactions. These preconfirmed states are fast but fragile. The operator can double-spend conflicting transactions, introducing active collusion risk. If this happens, the user cannot unilaterally prove which transaction is valid.

Ark preconfirmation offers speed without Bitcoin-level finality. Security improves only once VTXOs are settled onchain in the next Bitcoin block, in a footprint-minimal way thanks to Ark’s Transaction Batching.