Bitcoin covenants specifically limit where and how coins can be transferred after being purchased. Covenants are a part of Bitcoin Improvement Proposals (BIPs), which are the process of updating and improving Bitcoin to fix problems with scalability, security, and usability.
Camilo WoodAug 04, 20231833 Shares83330 Views
Bitcoin covenantsspecifically limit where and how coins can be transferred after being purchased.
These limitations are comparable to those that banks may impose on particular merchants whom they suspect of engaging in illegal activity.
Covenants are a good way to make Bitcoin better, but they haven't been studied much in recent years because they are hard to implement and raise questions about the currency's ability to be used for different things and to avoid being censored.
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It is possible to define covenants as linguistic primitives, which are the smallest and most basic "units of processing" that are available to a programmer.
Covenants are an extension of the Bitcoin script language that makes it possible for transactions to restrict the scripts of redeemed ones.
In a typical Bitcoin transaction, your bitcoin is secured by a locking script; in order to spend the coins, the script's requirements must first be satisfied.
Timelocks, which are similar to covenants in that they indicate that coins can't be spent until after a certain number of blocks have passed, are another type of locking condition.
One example of a locking condition is that you can't spend money unless you sign a document that shows you have a private key that matches the public key.
So, whereas in a "normal" Bitcoin script we only require certain conditions to be met in order to unlock a particular requirement (for example, signing a transaction with a private key), in a covenant we go one step further by restricting what you can do with that coin, or where a coin can be spent.
This is different from a "normal" Bitcoin script, where we only need to meet certain conditions to unlock a certain requirement.
Most of the time, a Bitcoin covenant is defined as "a way to enforce rules about how coins will change hands in the future."
It also entails a set of conditions on an unspent transaction output (UTXO), which specifies how the relevant coins associated with a transaction can be spent. This definition is commonly found in dictionaries.
For instance, a single wallet has the ability to impose a covenant on the Bitcoin that it possesses by whitelisting a select group of associated addresses.
When one wallet broadcasts a Bitcoin transaction to another wallet, the first wallet can only transmit the same Bitcoin to addresses that are listed on that whitelist.
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With BIP-119 OP CHECKTEMPLATEVERIFY (CTV), Bitcoin could get a new soft-fork upgrade that would let it be used in a lot of new ways.
Rubin is the author of Bitcoin Improvement Proposal 119 (BIP 119).
These Bitcoin Improvement Proposals (BIPs) are a way for both professional and amateur coders who contribute to Bitcoin to suggest changes to Bitcoin's code for the whole Bitcoin community to think about.
A covenant is a category of proposed amendments to the rules of Bitcoin's consensus that would enable a script to prevent an approved spender from spending on specific other scripts. This would be possible if an authorized spender was prevented from spending on certain other scripts.
The fungibility of Bitcoin, or the capacity of each Bitcoin to function and perform the same way as every other Bitcoin, could be compromised by covenants. Covenants would alter the characteristics of particular Bitcoin units, but they would be beneficial for security and scalability.
Although restricting the places where Bitcoins can be spent offers the benefit of increased safety, doing so also opens the door to censorship and control by governments, both of which would be detrimental to the continued existence of Bitcoin. Exchanges could be forced by the authorities to withdraw their funds only into agreements that have some degree of control over the coin.
Strong opinions have been expressed on both the benefits and drawbacks of bitcoin covenants; yet, debates are both beneficial and required for the improvement of a decentralized and leaderless network.
In the end, it will be up to the users and the node operators to make the final decision, and they will be the ones to download the software that most accurately represents their perspective.
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