What Are They And What Do They Do?

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The Controversial World of Bitcoin Covenants

Covenant : a usually formal, solemn, and binding agreement.

When it comes to the Bitcoin space, the term “covenant” has sparked a wide range of reactions. Some hail them as revolutionary, while others view them as a potential threat. The concept of covenants in Bitcoin is still evolving, with varying degrees of complexity and impact on the protocol.

There is a division among Bitcoin enthusiasts, with some supporting covenants, some opposing them, and others remaining indifferent. The lack of a clear definition for what constitutes a covenant in the context of Bitcoin further complicates the matter.

To provide more clarity, let’s establish a specific definition for covenants in the realm of Bitcoin.

Covenant : any script that guarantees some, or all, of the outputs created by a transaction will have to meet certain specified criteria for the spending transaction to be consensus valid.

Essentially, while traditional Bitcoin scripts dictate who can spend a coin and when, covenant scripts impose restrictions on how a coin can be spent. These restrictions can range from specifying recipients to setting conditions for future transactions.

Despite the controversy surrounding covenants, it’s important to note that similar control mechanisms can already be achieved using multisig setups. However, covenants offer a more structured and potentially powerful way to enforce spending conditions.

There are two key functionalities that covenants aim to enable: introspection and forward data carrying.

Introspection allows the evaluation of various transaction components to enforce specific conditions. The ability to compare different parts of a transaction grants greater flexibility in setting spending criteria.

Forward data carrying, on the other hand, involves including specific information in each transaction to be used in subsequent covenant scripts. This feature relies on introspection to ensure the required data is carried forward accurately.

Looking ahead, a series of articles will delve into major covenant proposals that are either well-developed, gaining traction, or of significant conceptual importance. These proposals, while not all strictly covenants, closely interact with the covenant framework.

Some of the key covenant proposals to be explored include: