Midnight Core Conceptsdata Models

UTXO = Unspent Transaction Output. Each token is a discrete digital coin that must be spent entirely.

Core Mechanics

Creation → Existence → Consumption → Prevention of Reuse

1. Creation: UTXO born with value, owner, cryptographic commitment
2. Existence: Queryable in active UTXO set
3. Consumption: Entire UTXO spent in transaction (change returned as new UTXO)
4. Prevention: Nullifier added to global set, prevents double-spend

Nullifier Innovation

Unlike Bitcoin's spent markers, Midnight uses nullifiers:

nullifier = Hash(UTXO_commitment, ownerSecret)

Privacy benefit: Nullifier reveals nothing about which UTXO was spent. The nullifier can be computed without exposing the original UTXO identity.

Shielded vs Unshielded

Each UTXO independently chooses privacy level:

• Shielded: Commitment hidden, value/owner private
• Unshielded: Value visible for regulatory compliance

// Receiving shielded tokens
receive coins: Coin[];

// Sending tokens (can be shielded or unshielded)
send value: QualifiedValue, to: Address;

Account Model (Contract Tokens)

Maintain address-to-balance mappings within Compact contracts. Similar to ERC-20.

When to Use

• Complex DeFi state machines requiring intricate interactions
• Gaming systems with stateful game logic
• Governance tokens with delegation mechanics
• Social tokens tracking relationships

Trade-offs

Ledger Structure

Midnight's ledger has two components:

1. Zswap State

• Merkle tree of coin commitments
• Free slot index
• Nullifier set
• Valid past Merkle roots

2. Contract Map

• Associates contract addresses with states
• Contains public and private state components

Token Types

Token types are 256-bit collision-resistant hashes:

• Native token: Predefined zero value
• Custom tokens: Hash of contract address + domain separator

// Issue custom token from contract
// Type = Hash(contractAddress, domainSeparator)

Practical Application

Choose UTXO When:

1. Users need transaction privacy
2. High throughput required (parallel processing)
3. Simple value transfers dominate
4. Regulatory compliance via selective disclosure (viewing keys)

Choose Account When:

1. Complex state logic required
2. Tokens interact with sophisticated contract logic
3. Privacy is secondary to functionality
4. Integration with existing DeFi patterns

References

For detailed technical information:

• references/utxo-mechanics.md - Complete UTXO lifecycle, nullifier computation
• references/ledger-structure.md - Zswap state internals, Merkle tree details

Examples

Working Compact patterns:

• examples/token-handling.compact - Receiving and sending tokens