Amid DeFi Hacks, Nervos and Cardano Join Forces to Improve Smart Contract Security

Public chain projects Nervos and Cardano have jointly launched a research initiative to enhance the security of smart contracts by improving Unspent Transaction Outputs (UTXOs), one of the most common accounting methods first adopted by the Bitcoin network. 

Nervos and IOHK, the development team behind Cardano, will co-author research papers on how to improve UTXO models, open source future developments, and explore the creation of a universal standard for the accounting method. They will form an alliance with other UTXO-based blockchains to help collaboration across research, development and education in the industry. 

UTXO, which keeps track of a user’s unspent transactions across all their accounts and monitors every single transaction, is a more secure alternative to the account-based accounting method used by smart contract-based blockchains such as Ethereum, Nervos said in a statement shared with CoinDesk. 

The account-based accounting method is more vulnerable to hacks, particularly for decentralized finance (DeFi) protocols, as it simply keeps track of the overall balance of a user’s account but doesn’t monitor the individual transactions within it. 

Nervos and IOHK have adopted modified versions for their respective blockchains. The two projects will share proprietary information to improve the accounting method. 

“UTXOs are superior to account models in many ways and provide improved security, privacy, and scalability, all of which are critical for DeFi,” said Kevin Wang, co-founder at Nervos.

Many DeFi projects rely on unaudited smart contracts with vulnerabilities that bad actors can exploit, according to a report by crypto intelligence company CipherTrace. 

Cardano launched a hard fork last week as part of the transition to its third major development phase, which will be focused on the blockchain’s smart contract functions, while Nervos unveiled its new token standard sUDT to compete with Ethereum’s ERC-20 standard.