BLOCKCHAIN & WEB3 FUNDAMENTALS - Chapter 10, Exercise 3 Solution
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An ERC-20 Version of the Payment: No UTXO Step At All

PROBLEM
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Using this chapter's own Ethereum comparison, explain specifically what
would need to happen differently if Bob's payment were 0.5 BTC worth
of a fungible ERC-20 token instead of native ETH — is there still a
"consuming a UTXO" step anywhere in that version of the story?

SOLUTION
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No - there is no UTXO-consuming step anywhere in the ERC-20 version of
this story, because UTXOs are specifically a Bitcoin (and Bitcoin-model)
concept, and this chapter's own comparison section explains that
Ethereum uses a structurally different accounting system entirely: the
account-based model from Chapter 6.

Here's what actually happens instead, replacing Step 3 of the original
Bitcoin flow:

Instead of building a transaction that consumes an existing UTXO and
creates new output UTXOs, Alice's wallet would construct a call to the
ERC-20 token contract's own standardized transfer function (Chapter 8),
specifying Bob's address and the amount. There's no discrete "coin
object" being consumed at all - the token contract simply holds an
internal record of every address's own balance, and executing the
transfer function directly decreases the number stored against Alice's
address and increases the number stored against Bob's, inside the
contract's own state.

Everything else in the ERC-20 version still closely parallels the
original flow, just running on Ethereum's own mechanics instead:
- Alice's wallet still signs the transaction with her private key
  (Chapter 2's ECDSA signing works identically here; it isn't
  Bitcoin-specific).
- The transaction still gets broadcast and independently verified by
  network participants.
- It still gets included in a block and mined/validated (Chapter 4's
  consensus mechanisms apply to Ethereum too, just using its own
  proof-of-stake process since 2022).
- Alice still pays a fee for this to happen - gas, rather than a
  Bitcoin-style transaction fee.

The one genuinely missing piece, compared to the original Bitcoin
scenario, is any notion of "change" at all - since there's no discrete
UTXO being spent in full, there's nothing left over to return to Alice;
her account balance simply decreases by exactly the amount sent plus
whatever gas fee was paid.

ANSWER: There is no UTXO-consuming step in the ERC-20 version - it's
replaced by a call to the token contract's own transfer function,
which directly updates two stored balance numbers (Alice's down, Bob's
up) rather than consuming and creating discrete coin objects. Signing,
broadcasting, and block inclusion still happen in a directly comparable
way, but the underlying accounting mechanism is genuinely different, not
just renamed.

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WHY THIS WORKS AS AN ANSWER

This directly answers the yes/no question first (no UTXO step exists)
and then correctly substitutes the actual mechanism that replaces it
(a direct balance update via the token contract's transfer function),
while accurately identifying which parts of the original flow still
carry over unchanged and which don't.