What are Bitcoin covenants, and how do they work?


What are the vows?
A covenant is used in private property law as a contract to restrict the use of an object, for example, the prohibition to extend a building or change the color of the facade.

Since Bitcoin is a private property, the term covenant seems quite appropriate to refer to the restrictions placed on its transactions. You have ownership of the property but can be limited in what you can do with it.

Specifically, the Bitcoin era proposals restrict how a coin is spent after it has been purchased and where coins can be transferred. These restrictions can be compared to those that banks may impose on certain merchants suspected of being involved in illegal activities.

Covenants can be helpful in Bitcoin promotion; However, since it is so complex in terms of implementation and the controversy surrounding the cryptocurrency’s interchangeability and resistance to censorship, it has not been seriously considered for inclusion in Bitcoin for a long time.

Can Bitcoin be improved?
Bitcoin can undoubtedly be improved, and BIPs, including pledges, represent the proposed changes to the Bitcoin consensus.

The pledges are included in Bitcoin Improvement Proposals (BIPs), the upgrade and improvement process that Bitcoin undergoes to modify and develop issues such as scalability, security, and usability.

The protocols allow the Bitcoin scripting language to prevent the authorized spender from spending on other specific scripts. They describe how to improve Bitcoin in smart contracts, information embedded in a code that is executed when certain conditions are met.

These bitcoin contracts can prevent user funds from being stolen in the event of a hack and can also help scale the network. There are many proposed applications for the covenants, from expanding the capacity of Bitcoin transactions to congestion control, trust microloans, and more. These use cases are described in the controversial BIP119, introduced by developer Jeremy Rubin as a simple fork, and discussed by the community.

This Bitcoin improvement proposal introduces a change to the Bitcoin token, which seeks to use a new token (operating token). The opcode is OP_CHECKTEMPLATEVERIFY (CTV-style compact) and allows for a limited set of precious use cases without too much risk.

CTV can help scale Bitcoin by executing congestion control transactions. When the traffic of transactions is very high, the fees increase significantly. With this CTV, large payment processors can include all their payments in a single transaction for confirmation purposes, which saves a lot of space and results in faster and cheaper execution.

How do bitcoin vows work?
Covenants can be defined as language assets (the smallest and simplest “processing unit” available to the programmer) that extend the Bitcoin script language allowing transactions to constrain the scripts that retrieve value.

In a typical Bitcoin transaction, your Bitcoin is protected by a lock script, the conditions of which must be met if you want to spend the coins. Examples of lock conditions could be a refusal to charge without a signature that proves that you have the private key matching the public key; or timelocks, which are similar to covenants and indicate that coins can only be spent after a certain number of blocks.

So while in the “normal” Bitcoin script we only require specific conditions that must be met to unlock certain requirements (signing a transaction with a private key, for example), in Covenant we go one step further by restricting what you can do with that coin , or where a coin can be spent.

The Bitcoin Agreement is often defined as “a mechanism for enforcing conditions regarding how control of the coins will be transferred in the future” and includes a set of conditions for an unspent transaction output (TXO) (UTXO), which determines how appropriate the transaction can spend the coins.

For example, a single wallet can put a covenant on the bitcoin that it holds on the whitelist of some related address. When that wallet broadcasts a Bitcoin transaction to another wallet, that wallet in turn can only send the same Bitcoin to the addresses on that whitelist.



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