Key Takeaways

The conversation about Bitcoin covenants is centered on the need to scale non-custodial usage of Bitcoin beyond the current capacity, which is estimated to support only 100 million users engaging in minimal channel management on the Lightning Network. Covenants, and specifically the type that controls the creation of the next output (UTXO), offer a pathway to scale Bitcoin for greater adoption without resorting to custodians or block size increases.

Covenants like CheckTemplateVerify (CTV) allow for the creation of more complex spending conditions without the need for signatures, which could, for example, enable the creation of shared UTXOs, reducing the on-chain footprint and transaction costs for users. This functionality is critical for building additional layers on top of Bitcoin that can support more users in a trustless manner.

Best Quotes

• "We need some way of sharing pieces of bitcoin, or UTXOs, and covenants, specifically this type of covenant that creates a next output, enables more people to use bitcoin."
• "With CTV, one party can non-interactively transfer funds on a channel to the other without needing to sign it."
• "Anything from CheckSigFromStack down is pretty clearly safe in that we can safely reason about all of the behaviors that it enables."

Conclusion

Bitcoin covenants are not an attack on the network but a necessary and prudent evolution of its capabilities to meet growing demand for non-custodial services. By facilitating shared UTXOs, covenants could significantly enhance the value density of transactions, making the network more efficient and accessible. While some fear the potential for unforeseen consequences, the more targeted proposals like CTV offer limited scope for change, reducing the risk profile compared to broader updates like SegWit and Taproot.

The Bitcoin community faces a challenge in determining the criteria for implementing such changes—whether commercial viability must be demonstrated or if the potential benefits to the network justify action. Engaging in constructive dialogue and considering the implications of terminology, such as the word "covenant," are essential as the community navigates these decisions. As Bitcoin continues to evolve, it remains crucial to weigh the balance between preserving the network's integrity and adapting to support a future where Bitcoin can be more widely used in a trustless, non-custodial manner.