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- Think of the bitcoin covenant as a private property law that is used to restrict the usage of a particular object, in this case, the bitcoin, specifically, the bitcoin transactions.
- The BIP includes covenants as a way to modify and tackle problems such as scalability, security, and user friction.
- A covenant even controls how the coins will be transferred in the future.
But What Really Are These Covenants?
Just like with our fiat currencies, we also want protection and security protocols in our bitcoin. After all, bTC will be our generation’s next wallet. The effects can already be seen live in action.
Think of the bitcoin covenant as a private property law that is used to restrict the usage of a particular object, in this case, the bitcoin, specifically, the bitcoin transactions.
So, there are always going to be people who will try to take advantage of the system by breaking the law and start pursuing illegal activities.
With the help of the protocols underlying the BTC covenants, it became far easier to restrict how a coin can be spent as well as where the coins are being transferred.
The issues with the bitcoin covenants are:
- They are too complex to implement.
- It triggers controversy about trying to erode bitcoin’s fungibility.
- It violates Bitcoin’s censorship-resistant property.
The standard methodology employed to promote ideas, changes, and updates to the bitcoin protocol is known as the Bitcoin Improvement Proposal, also known as the BIP.
The BIP includes covenants as a way to modify and tackle problems such as scalability, security, and user friction.
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Okay, But How Does It Work?
When you execute a transaction on the bitcoin network, your bitcoin is protected by a coded program known as the locking script.
That locking script is the protocol that decides whether a bitcoin transaction will occur or not.
In order for the transaction to be valid, it must follow a few conditions of the locking script, such as there must be a signature proving that the private key matches the public key.
But in this protocol, there are only “certain” conditions that need to be fulfilled in order for the transaction to be valid. Whereas, a covenant even controls how the coins will be transferred in the future. This includes a whitelist providing a particular bitcoin amount. You can only transfer your coins to those particular addresses which are granted access through the whitelist.
This will eventually end the fungibility of BTC, and convert it into an NFT format.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
