Security Analysis of Blockchain Layer-One Sharding Based Extended-UTxO Model

Blockchain technology facilitates the transfer of digital assets, accomplished through the distributed storage of a transaction ledger, allowing peer-to-peer participant nodes to agree on valid transactions based on their local records without the reliance on centralised infrastructure or trusted participants. Distributed ledgers are increasing in public adoption, which can be attributed to the permissionless infrastructure and a rise in decentralised finance (DeFi) protocols. In this growth, shortcomings in throughput and latency have been highlighted, especially when compared to traditional payment channels. The extended-UTXO (eUTXO) model offers the untapped potential to support a functionally scalable infrastructure by adopting qualities of both the account model, and directed acyclic graph-structured UTXO model. We identified the unique benefits of eUTXO as: the ability to bundle the transaction processing of non-conflicting input states, achieving parallelism at the validator nodes; and the ability to implement complex off-chain scaling solutions through smart contracts. This research examines the security impact of sharding when applied alongside an eUTXO ledger. To illustrate this we introduce S-EUTO, a novel proof-of-concept state-sharding protocol. It leverages distributed randomness to ensure unbiased node-to-shard distribution and introduces an input/output cross-shard transaction architecture to maintain global state synchronisation. Our model demonstrated the potential of sharding alongside eUTXO without compromising security.