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What are Bitcoin covenants, and how do they work?

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What are Bitcoin covenants, and how do they work?
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What is Bitcoin? How does blockchain work? How to mine cryptocurrency? We are glad to help you answer these questions with our quick guides in Explained section.

rn”,”seo_description”:”What is Bitcoin? How does blockchain work? How to mine cryptocurrency? We are glad to help you answer these questions with our quick guides in Explained section.”},”words_count”:761,”description”:” Bitcoin improvements can be achieved by implementing covenants. This article explains covenants, how they work and the debate around them.rn “,”author”:{“id”:1534,”title”:”Emi Lacapra”,”url”:”emi-lacapra”,”twitter”:””,”google_plus”:””,”photo”:””,”gender”:”female”,”description”:”Emilia Lacapra has been learning about cryptocurrency and blockchain since 2017. She first started as a small investor and soon became passionate about the industry, the technological innovation and the improvement that it could bring to the world. She believes Bitcoin is the natural currency of the internet. Emi has been an educational content writer in the crypto space for several years and aims at accurately delivering complex concepts.”,”facebook”:””,”email”:””,”linkedin”:””,”created_at”:”2022-04-13 13:40:07″,”updated_at”:”2022-04-23 16:17:03″,”deleted_at”:null,”avatar”:”https://cointelegraph.com/assets/img/icons/author_female.png”,”hash”:”aHR0cHM6Ly9jb2ludGVsZWdyYXBoLmNvbS9hdXRob3JzL2VtaS1sYWNhcHJh”,”relativeUrl”:”https://cointelegraph.com/authors/emi-lacapra”,”user_id”:1534,”language_id”:1,”name”:”Emi Lacapra”,”desc”:”Emilia Lacapra has been learning about cryptocurrency and blockchain since 2017. She first started as a small investor and soon became passionate about the industry, the technological innovation and the improvement that it could bring to the world. She believes Bitcoin is the natural currency of the internet. Emi has been an educational content writer in the crypto space for several years and aims at accurately delivering complex concepts.”,”seo_title”:””,”seo_description”:””,”enabled”:1,”show_in_authors”:0,”show_in_experts”:0},”category_id”:65,”audio”:”https://s3.cointelegraph.com/audio/88760.69aa3cdb-bee3-40df-a9cc-f33ce939ce1c.mp3″,”tags”:[{“name”:”Bitcoin”,”uri”:”/tags/bitcoin”,”super”:1,”page_title”:”Bitcoin News”}],”tag_title”:”Bitcoin”,”date”:”4 HOURS AGO”,”badge”:{“title”:”Explained”,”label”:”default”},”qty”:79,”stats_pixel”:”“,”stats_pixel_url”:”https://zoa.cointelegraph.com/pixel?postId=88760&regionId=1″,”shares”:6,”infographic”:false,”sponsored”:false,”explained”:true,”press_release”:false,”show_referral”:false,”social_description”:” Covenants have the potential to improve Bitcoin, but remain controversial due to a risk to the cryptocurrency’s fungibility and censorship-resistant property. Learn more about the concept and the debate that surrounds it. “,”social_translators”:{“clipboard_popup_label”:”Link copied”,”socialWechatFooterError”:”WeChat error”,”socialWechatFooterText”:”WeChat share”,”socialWechatHeaderText”:”WeChat share”},”social_shares”:{“post_id”:88760,”post_url”:”https://cointelegraph.com/explained/what-are-bitcoin-covenants-and-how-do-they-work”,”post_titles”:{“normal”:”What are Bitcoin covenants, and how do they work?”,”twitter”:”What are Bitcoin covenants, and how do they work?”},”post_text”:{“normal”:”What are Bitcoin covenants, and how do they work?”,”twitter”:”What are Bitcoin covenants, and how do they work? https://cointelegraph.com/explained/what-are-bitcoin-covenants-and-how-do-they-work via @cointelegraph”},”accounts”:{“twitter”:”@cointelegraph”}},”socials”:{“facebook”:{“url”:”https://www.facebook.com/sharer/sharer.php?u=https%3A%2F%2Fcointelegraph.com%2Fexplained%2Fwhat-are-bitcoin-covenants-and-how-do-they-work”,”count”:null,”short”:”fb”,”fa”:”facebook”},”twitter”:{“url”:”https://twitter.com/intent/tweet?text=What+are+Bitcoin+covenants%2C+and+how+do+they+work%3F https%3A%2F%2Fcointelegraph.com%2Fexplained%2Fwhat-are-bitcoin-covenants-and-how-do-they-work via @cointelegraph”,”count”:null,”short”:”tw”,”fa”:”twitter”},”telegram”:{“url”:”https://telegram.me/share/url?url=https%3A%2F%2Fcointelegraph.com%2Fexplained%2Fwhat-are-bitcoin-covenants-and-how-do-they-work &text=What+are+Bitcoin+covenants%2C+and+how+do+they+work%3F”,”count”:null,”short”:”tg”,”fa”:”paper-plane”},”whatsapp”:{“url”:”https://api.whatsapp.com/send?text=What+are+Bitcoin+covenants%2C+and+how+do+they+work%3F&href=https%3A%2F%2Fcointelegraph.com%2Fexplained%2Fwhat-are-bitcoin-covenants-and-how-do-they-work”,”count”:null,”short”:”wu”,”fa”:”whatsapp”},”gplus”:{“url”:”https://plus.google.com/share?url=https%3A%2F%2Fcointelegraph.com%2Fexplained%2Fwhat-are-bitcoin-covenants-and-how-do-they-work”,”count”:null,”short”:”gplus”,”fa”:”google-plus”},”reddit”:{“url”:”https://www.reddit.com/submit?url=https%3A%2F%2Fcointelegraph.com%2Fexplained%2Fwhat-are-bitcoin-covenants-and-how-do-they-work&title=What+are+Bitcoin+covenants%2C+and+how+do+they+work%3F”,”count”:null,”short”:”reddit”,”fa”:”reddit-alien”},”linkedin”:{“url”:”https://www.linkedin.com/shareArticle?mini=true&url=https%3A%2F%2Fcointelegraph.com%2Fexplained%2Fwhat-are-bitcoin-covenants-and-how-do-they-work&title=What+are+Bitcoin+covenants%2C+and+how+do+they+work%3F”,”count”:null,”short”:”li”,”fa”:”linkedin”}},”hide_disclaimer”:false,”elink”:”https://cointelegraph.com”,”etitle”:”Cointelegraph”,”elogo_x2″:”https://images.cointelegraph.com/images/528_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS9zdG9yYWdlL3VwbG9hZHMvdmlldy9hYjAzYTJhMmNlOWEyMWRjMWYwOTYxZDkxNzMxYzhiYS5wbmc=.png”,”elogo_x1″:”https://images.cointelegraph.com/images/260_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS9zdG9yYWdlL3VwbG9hZHMvdmlldy9hYjAzYTJhMmNlOWEyMWRjMWYwOTYxZDkxNzMxYzhiYS5wbmc=.png”,”elogo_svg”:false,”content”:[{“id”:3546,”post_id”:88760,”title”:”What are covenants?”,”content”:”

A covenant is used in private property law as a contract to restrict an object’s use, for example, the interdiction to extend a building or change a facade’s color.

nn

Since Bitcoin is private property, the term covenant seems perfectly fitted to indicate restrictions on its transactions. You have ownership of the property but can be limited in what you can do with it.

nn

Specifically, Bitcoin covenant proposals restrict how a coin can be spent after you bought it and where coins can be transferred. These restrictions can be compared to those that banks might place on specific merchants suspected of engaging in illicit activities. 

nn

Covenants can be useful to upgrade Bitcoin; however, since they are complex to implement and trigger controversy over the cryptocurrency’s fungibility and censorship-resistant property, they have not been seriously considered for inclusion in Bitcoin for a long time. 

nnnnn”,”created_at”:”2022-06-26 14:45:15″,”updated_at”:”2022-06-26 15:44:07″,”sort”:1,”translations”:{“id”:3539,”explained_post_id”:3546,”title_en”:”What are covenants?”,”content_en”:”

A covenant is used in private property law as a contract to restrict an object’s use, for example, the interdiction to extend a building or change a facade’s color.

nn

Since Bitcoin is private property, the term covenant seems perfectly fitted to indicate restrictions on its transactions. You have ownership of the property but can be limited in what you can do with it.

nn

Specifically, Bitcoin covenant proposals restrict how a coin can be spent after you bought it and where coins can be transferred. These restrictions can be compared to those that banks might place on specific merchants suspected of engaging in illicit activities. 

nn

Covenants can be useful to upgrade Bitcoin; however, since they are complex to implement and trigger controversy over the cryptocurrency’s fungibility and censorship-resistant property, they have not been seriously considered for inclusion in Bitcoin for a long time. 

nnnnn”,”title_es”:””,”content_es”:”nnn”,”title_cn”:””,”content_cn”:”nnn”,”title_de”:””,”content_de”:”nnn”,”title_fr”:””,”content_fr”:”nnn”,”title_it”:””,”content_it”:”nnn”,”title_ar”:””,”content_ar”:”nnn”,”title_br”:””,”content_br”:”nnn”,”title_jp”:””,”content_jp”:”nnn”,”created_at”:”2022-06-26 14:45:15″,”updated_at”:”2022-06-26 15:44:07″,”title_kr”:””,”content_kr”:”nnn”,”title_tr”:””,”content_tr”:”nnn”}},{“id”:3547,”post_id”:88760,”title”:”Can Bitcoin be improved?”,”content”:”

Bitcoin can undoubtedly be improved, and BIPs, including covenants, represent proposed changes to Bitcoin’s consensus. 

nn

Covenants are included in Bitcoin Improvement Proposals (BIPs), the upgrade and improvement process Bitcoin undergoes to modify and advance issues like scalability, security and usability.

nn

Covenants allow a Bitcoin script language to prevent an authorized spender from spending on specific other scripts. They describe how to improve Bitcoin in smart contracts, information included in a code that executes when certain conditions are met. 

nn

These Bitcoin contracts could prevent users’ funds from being stolen in case of hacking and can also help scale the network. There are many proposed applications for covenants, from scaling Bitcoin transaction capacity to congestion control, trust-minimized loans and more. These use cases are described in the controversial BIP119, presented by developer Jeremy Rubin as a soft fork, and discussed by the community. 

nn

This Bitcoin Improvement Proposal introduces a change to Bitcoin’s code, which seeks to use a new operation code (opcode). The opcode is OP_CHECKTEMPLATEVERIFY (CTV-style covenant) and enables a limited set of precious use cases without incurring significant risks. 

nn

CTV can potentially help scale Bitcoin through the implementation of Congestion Controlled Transactions. When transaction traffic is very high, fees increase exponentially. Using this CTV, large payment processors can include all their payments in a single transaction for confirmation purposes, saving block space and resulting in faster and cheaper execution.

nnnnn”,”created_at”:”2022-06-26 14:46:03″,”updated_at”:”2022-06-26 15:44:07″,”sort”:2,”translations”:{“id”:3540,”explained_post_id”:3547,”title_en”:”Can Bitcoin be improved?”,”content_en”:”

Bitcoin can undoubtedly be improved, and BIPs, including covenants, represent proposed changes to Bitcoin’s consensus. 

nn

Covenants are included in Bitcoin Improvement Proposals (BIPs), the upgrade and improvement process Bitcoin undergoes to modify and advance issues like scalability, security and usability.

nn

Covenants allow a Bitcoin script language to prevent an authorized spender from spending on specific other scripts. They describe how to improve Bitcoin in smart contracts, information included in a code that executes when certain conditions are met. 

nn

These Bitcoin contracts could prevent users’ funds from being stolen in case of hacking and can also help scale the network. There are many proposed applications for covenants, from scaling Bitcoin transaction capacity to congestion control, trust-minimized loans and more. These use cases are described in the controversial BIP119, presented by developer Jeremy Rubin as a soft fork, and discussed by the community. 

nn

This Bitcoin Improvement Proposal introduces a change to Bitcoin’s code, which seeks to use a new operation code (opcode). The opcode is OP_CHECKTEMPLATEVERIFY (CTV-style covenant) and enables a limited set of precious use cases without incurring significant risks. 

nn

CTV can potentially help scale Bitcoin through the implementation of Congestion Controlled Transactions. When transaction traffic is very high, fees increase exponentially. Using this CTV, large payment processors can include all their payments in a single transaction for confirmation purposes, saving block space and resulting in faster and cheaper execution.

nnnnn”,”title_es”:””,”content_es”:”nnn”,”title_cn”:””,”content_cn”:”nnn”,”title_de”:””,”content_de”:”nnn”,”title_fr”:””,”content_fr”:”nnn”,”title_it”:””,”content_it”:”nnn”,”title_ar”:””,”content_ar”:”nnn”,”title_br”:””,”content_br”:”nnn”,”title_jp”:””,”content_jp”:”nnn”,”created_at”:”2022-06-26 14:46:03″,”updated_at”:”2022-06-26 15:44:07″,”title_kr”:””,”content_kr”:”nnn”,”title_tr”:””,”content_tr”:”nnn”}},{“id”:3548,”post_id”:88760,”title”:”How do Bitcoin covenants work?”,”content”:”

Covenants can be defined as linguistic primitives (the smallest and simplest “unit of processing” available to a programmer) that extend the Bitcoin script language allowing transactions to restrain the scripts of the redeeming ones. 

nn

In a typical Bitcoin transaction, your Bitcoin is protected with a locking script, whose conditions should be met if you want to spend the coins. Examples of locking conditions can be the denial of expenditure without a signature proving you have the private key that matches the public key; or timelocks, which are similar to covenants and indicate that coins can’t be spent until after a certain number of blocks. 

nn

So whereas in a “normal” Bitcoin script, we only require specific conditions to be met to unlock a particular requirement (sign a transaction with a private key, for example), in a covenant, we go a step further by restricting what you can do with that coin, or where a coin can be spent. 

nn

A Bitcoin covenant is often defined as “a mechanism to enforce conditions on how the control of coins will be transferred in the future” and includes a set of conditions on an unspent transaction[TX] output (UTXO), which defines how the transaction’s relevant coins can be spent.

nn

For example, one wallet can place a covenant on the Bitcoin it holds whitelisting a few related addresses. When this wallet broadcasts a Bitcoin transaction to another wallet, in turn, this wallet can only send the same Bitcoin to addresses included on that whitelist. 

nnnnn”,”created_at”:”2022-06-26 14:46:46″,”updated_at”:”2022-06-26 15:44:07″,”sort”:3,”translations”:{“id”:3541,”explained_post_id”:3548,”title_en”:”How do Bitcoin covenants work?”,”content_en”:”

Covenants can be defined as linguistic primitives (the smallest and simplest “unit of processing” available to a programmer) that extend the Bitcoin script language allowing transactions to restrain the scripts of the redeeming ones. 

nn

In a typical Bitcoin transaction, your Bitcoin is protected with a locking script, whose conditions should be met if you want to spend the coins. Examples of locking conditions can be the denial of expenditure without a signature proving you have the private key that matches the public key; or timelocks, which are similar to covenants and indicate that coins can’t be spent until after a certain number of blocks. 

nn

So whereas in a “normal” Bitcoin script, we only require specific conditions to be met to unlock a particular requirement (sign a transaction with a private key, for example), in a covenant, we go a step further by restricting what you can do with that coin, or where a coin can be spent. 

nn

A Bitcoin covenant is often defined as “a mechanism to enforce conditions on how the control of coins will be transferred in the future” and includes a set of conditions on an unspent transaction[TX] output (UTXO), which defines how the transaction’s relevant coins can be spent.

nn

For example, one wallet can place a covenant on the Bitcoin it holds whitelisting a few related addresses. When this wallet broadcasts a Bitcoin transaction to another wallet, in turn, this wallet can only send the same Bitcoin to addresses included on that whitelist. 

nnnnn”,”title_es”:””,”content_es”:”nnn”,”title_cn”:””,”content_cn”:”nnn”,”title_de”:””,”content_de”:”nnn”,”title_fr”:””,”content_fr”:”nnn”,”title_it”:””,”content_it”:”nnn”,”title_ar”:””,”content_ar”:”nnn”,”title_br”:””,”content_br”:”nnn”,”title_jp”:””,”content_jp”:”nnn”,”created_at”:”2022-06-26 14:46:46″,”updated_at”:”2022-06-26 15:44:07″,”title_kr”:””,”content_kr”:”nnn”,”title_tr”:””,”content_tr”:”nnn”}},{“id”:3549,”post_id”:88760,”title”:”Advantages of Bitcoin covenants”,”content”:”

Improving Bitcoin security is one of the most significant advances constantly sought by developers, and covenants might offer a great helping hand in enhancing it.

nn

Besides improved scalability, covenants are helpful for security, especially against some form of the $5 wrench attack. Taking steps to protect your Bitcoin property so that it becomes harder for people to steal is an excellent use case. 

nn

Another good security approach provided by covenants would be to restrict your UTXO to be sent to a multi-sig address after a year, for example. Covenants can also address the difficulty of secure key management, and implementing secure vaults can help with one of the biggest problems of cryptocurrency security. Vaults enhance end-user security by disincentivizing the theft of coins. 

nn

The user employs a mechanism that prevents an attacker from gaining full control over funds despite stealing the private keys used to secure them. This mechanism includes the use of pre-signed transactions with key deletion to enforce a time-lock on funds. 

nn

Covenants can also implement a restrictive mechanism to prevent double-spending attacks in Bitcoin-NG, a Byzantine fault-tolerant blockchain protocol that has been recently proposed to improve Bitcoin’s throughput, latency and overall scalability. 

nn

This mechanism is translated into so-called poison transactions that can be implemented progressively as an overlay on top of the Bitcoin blockchain.

nnnnn”,”created_at”:”2022-06-26 14:47:30″,”updated_at”:”2022-06-26 15:44:07″,”sort”:4,”translations”:{“id”:3542,”explained_post_id”:3549,”title_en”:”Advantages of Bitcoin covenants”,”content_en”:”

Improving Bitcoin security is one of the most significant advances constantly sought by developers, and covenants might offer a great helping hand in enhancing it.

nn

Besides improved scalability, covenants are helpful for security, especially against some form of the $5 wrench attack. Taking steps to protect your Bitcoin property so that it becomes harder for people to steal is an excellent use case. 

nn

Another good security approach provided by covenants would be to restrict your UTXO to be sent to a multi-sig address after a year, for example. Covenants can also address the difficulty of secure key management, and implementing secure vaults can help with one of the biggest problems of cryptocurrency security. Vaults enhance end-user security by disincentivizing the theft of coins. 

nn

The user employs a mechanism that prevents an attacker from gaining full control over funds despite stealing the private keys used to secure them. This mechanism includes the use of pre-signed transactions with key deletion to enforce a time-lock on funds. 

nn

Covenants can also implement a restrictive mechanism to prevent double-spending attacks in Bitcoin-NG, a Byzantine fault-tolerant blockchain protocol that has been recently proposed to improve Bitcoin’s throughput, latency and overall scalability. 

nn

This mechanism is translated into so-called poison transactions that can be implemented progressively as an overlay on top of the Bitcoin blockchain.

nnnnn”,”title_es”:””,”content_es”:”nnn”,”title_cn”:””,”content_cn”:”nnn”,”title_de”:””,”content_de”:”nnn”,”title_fr”:””,”content_fr”:”nnn”,”title_it”:””,”content_it”:”nnn”,”title_ar”:””,”content_ar”:”nnn”,”title_br”:””,”content_br”:”nnn”,”title_jp”:””,”content_jp”:”nnn”,”created_at”:”2022-06-26 14:47:30″,”updated_at”:”2022-06-26 15:44:07″,”title_kr”:””,”content_kr”:”nnn”,”title_tr”:””,”content_tr”:”nnn”}},{“id”:3550,”post_id”:88760,”title”:”Drawbacks of Bitcoin covenants”,”content”:”

Various prominent Bitcoin experts, including Adam Back, Jimmy Song and Andreas Antonopoulos, have raised some concerns over the implementation of restrictive covenants, in particular with the BIP119.

nn

In particular, Antonopoulos has voiced concerns over “recursive covenants” that the new update could convey, thereby deteriorating the network. A recursive covenant occurs when a programmer restricts a transaction, but he does it in a way that restricts another transaction after that, starting a domino effect resulting in future limitless recursive covenants.

nn

Blacklisting and risks of censorship and confiscation

nn

While locking up where a Bitcoin can be spent is advantageous to ensure more security, it also provides grounds for censorship, and control by governments, which would hinder the very existence of Bitcoin. Authorities could potentially force exchanges to withdraw only to covenants with some control over the coin.

nn

While this same risk already exists, since governments can ask exchanges to send only to addresses with a taproot spend path or multi-sig controlled by them, could the implementation of covenants facilitate malicious purposes where it would make it easier for governments to enforce a sort of on-chain KYC? 

nn

Fungibility threats

nn

Covenants might interfere with Bitcoin’s fungibility — the ability of each Bitcoin to be identical in function and quality.

nn

While useful for security and scalability, covenants would change the properties of specific Bitcoin units, essentially creating different types of digital currency, distinct according to what could be spent or where it could be sent. 

nn

As a result, those who oppose the change argued that limiting how you can spend your Bitcoin would ultimately limit Bitcoin’s use as a digital currency, with inevitable consequences in its value.

nn

There are strong opinions on covenants’ pros and cons; however, debates are healthy and necessary to improve a decentralized and leaderless network. Ultimately, the final decision will be down to the users and node operators who will download the software that better reflects their viewpoint.

nnn”,”created_at”:”2022-06-26 14:48:41″,”updated_at”:”2022-06-26 15:44:07″,”sort”:5,”translations”:{“id”:3543,”explained_post_id”:3550,”title_en”:”Drawbacks of Bitcoin covenants”,”content_en”:”

Various prominent Bitcoin experts, including Adam Back, Jimmy Song and Andreas Antonopoulos, have raised some concerns over the implementation of restrictive covenants, in particular with the BIP119.

nn

In particular, Antonopoulos has voiced concerns over “recursive covenants” that the new update could convey, thereby deteriorating the network. A recursive covenant occurs when a programmer restricts a transaction, but he does it in a way that restricts another transaction after that, starting a domino effect resulting in future limitless recursive covenants.

nn

Blacklisting and risks of censorship and confiscation

nn

While locking up where a Bitcoin can be spent is advantageous to ensure more security, it also provides grounds for censorship, and control by governments, which would hinder the very existence of Bitcoin. Authorities could potentially force exchanges to withdraw only to covenants with some control over the coin.

nn

While this same risk already exists, since governments can ask exchanges to send only to addresses with a taproot spend path or multi-sig controlled by them, could the implementation of covenants facilitate malicious purposes where it would make it easier for governments to enforce a sort of on-chain KYC? 

nn

Fungibility threats

nn

Covenants might interfere with Bitcoin’s fungibility — the ability of each Bitcoin to be identical in function and quality.

nn

While useful for security and scalability, covenants would change the properties of specific Bitcoin units, essentially creating different types of digital currency, distinct according to what could be spent or where it could be sent. 

nn

As a result, those who oppose the change argued that limiting how you can spend your Bitcoin would ultimately limit Bitcoin’s use as a digital currency, with inevitable consequences in its value.

nn

There are strong opinions on covenants’ pros and cons; however, debates are healthy and necessary to improve a decentralized and leaderless network. Ultimately, the final decision will be down to the users and node operators who will download the software that better reflects their viewpoint.

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At its peak, the BTC network demanded 16.09 GW of power. “,”leadfull”:””,”category_id”:2,”category_url”:”https://cointelegraph.com/category/latest-news”,”category_title”:”Latest News”,”author_url”:”https://cointelegraph.com/authors/arijit-sarkar”,”author_hash”:”aHR0cHM6Ly9jb2ludGVsZWdyYXBoLmNvbS9hdXRob3JzL2FyaWppdC1zYXJrYXI=”,”author_title”:”Arijit Sarkar”,”author_img”:”https://images.cointelegraph.com/images/32_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS9zdG9yYWdlL3VwbG9hZHMvdmlldy8zNDRiYzQ0MWU3OWQyMDE3NTdlOTZmZWQxMTEyYjQxMi5qcGc=.jpg”,”date”:”JUN 25, 2022″,”flash_date”:”JUN 25, 2022″,”sponsored”:false,”press_release”:false,”sponsored_label”:”Sponsored”,”explained”:false,”badge”:{“title”:”News”,”label”:”default”},”published”:{“date”:”2022-06-25 08:00:43.000000″,”timezone_type”:3,”timezone”:”Europe/London”},”stat_uniqs”:7856,”rss_date”:”Sat, 25 Jun 2022 08:00:43 +0100″,”publishedW3″:”2022-06-25T08:00:43+01:00″,”show_referral”:true,”isMagazine”:false}]}” :shares='{“facebook”:{“url”:”https://www.facebook.com/sharer/sharer.php?u=%URL%”,”icon”:”facebook”,”title”:”Facebook”,”sizesAllowed”:[{“size”:”lg”,”label”:”Large devices”,”breakpoint”:”> 1200px”},{“size”:”md”,”label”:”Medium devices”,”breakpoint”:”> 992px”},{“size”:”sm”,”label”:”Small tablets”,”breakpoint”:”> 768px”},{“size”:”xs”,”label”:”Smartphones”,”breakpoint”:”> 480px”},{“size”:”xxs”,”label”:”Extra small devices”,”breakpoint”:”< 480px"}],"position":1,"status":true},"twitter":{"url":"https://twitter.com/intent/tweet?text=%TEXT%","icon":"twitter","title":"Twitter","position":2,"status":true,"sizesAllowed":[{"size":"xxs","label":"Extra small devices","breakpoint":"< 480px"},{"size":"xs","label":"Smartphones","breakpoint":"> 480px”},{“size”:”sm”,”label”:”Small tablets”,”breakpoint”:”> 768px”},{“size”:”md”,”label”:”Medium devices”,”breakpoint”:”> 992px”},{“size”:”lg”,”label”:”Large devices”,”breakpoint”:”> 1200px”}]},”telegram”:{“url”:”https://t.me/share/url?url=%URL%&text=%TEXT%”,”icon”:”telegram”,”title”:”Telegram”,”position”:3,”status”:true,”sizesAllowed”:[{“size”:”xxs”,”label”:”Extra small devices”,”breakpoint”:”< 480px"},{"size":"xs","label":"Smartphones","breakpoint":"> 480px”},{“size”:”sm”,”label”:”Small tablets”,”breakpoint”:”> 768px”},{“size”:”md”,”label”:”Medium devices”,”breakpoint”:”> 992px”},{“size”:”lg”,”label”:”Large devices”,”breakpoint”:”> 1200px”}]},”linkedin”:{“url”:”https://www.linkedin.com/shareArticle?mini=true&url=%URL%&title=%TITLE%”,”icon”:”linked-in”,”title”:”LinkedIn”,”position”:5,”status”:true,”sizesAllowed”:[{“size”:”xxs”,”label”:”Extra small devices”,”breakpoint”:”< 480px"},{"size":"xs","label":"Smartphones","breakpoint":"> 480px”},{“size”:”sm”,”label”:”Small tablets”,”breakpoint”:”> 768px”},{“size”:”md”,”label”:”Medium devices”,”breakpoint”:”> 992px”},{“size”:”lg”,”label”:”Large devices”,”breakpoint”:”> 1200px”}]},”copy”:{“url”:”%URL%”,”icon”:”copy”,”position”:7,”title”:”Copy Link”,”sizesAllowed”:[{“size”:”xxs”,”label”:”Extra small devices”,”breakpoint”:”< 480px"},{"size":"xs","label":"Smartphones","breakpoint":"> 480px”},{“size”:”sm”,”label”:”Small tablets”,”breakpoint”:”> 768px”},{“size”:”md”,”label”:”Medium devices”,”breakpoint”:”> 992px”},{“size”:”lg”,”label”:”Large devices”,”breakpoint”:”> 1200px”}],”status”:true},”whatsapp”:{“url”:”https://wa.me/?text=%TITLE% %URL%”,”icon”:”whats-app”,”title”:”Whatsapp”,”sizesAllowed”:[{“size”:”xxs”,”label”:”Extra small devices”,”breakpoint”:”< 480px"},{"size":"xs","label":"Smartphones","breakpoint":"> 480px”},{“size”:”sm”,”label”:”Small tablets”,”breakpoint”:”> 768px”},{“size”:”md”,”label”:”Medium devices”,”breakpoint”:”> 992px”},{“size”:”lg”,”label”:”Large devices”,”breakpoint”:”> 1200px”}],”position”:6,”status”:true},”reddit”:{“url”:”https://www.reddit.com/submit?url=%URL%&title=%TITLE%”,”icon”:”reddit”,”title”:”Reddit”,”sizesAllowed”:[{“size”:”xxs”,”label”:”Extra small devices”,”breakpoint”:”< 480px"},{"size":"xs","label":"Smartphones","breakpoint":"> 480px”},{“size”:”sm”,”label”:”Small tablets”,”breakpoint”:”> 768px”},{“size”:”md”,”label”:”Medium devices”,”breakpoint”:”> 992px”},{“size”:”lg”,”label”:”Large devices”,”breakpoint”:”> 1200px”}],”position”:4,”status”:true}}’ is=”ExplainedPostPage”>

A covenant is used in private property law as a contract to restrict an object’s use, for example, the interdiction to extend a building or change a facade’s color.

Since Bitcoin is private property, the term covenant seems perfectly fitted to indicate restrictions on its transactions. You have ownership of the property but can be limited in what you can do with it.

Specifically, Bitcoin covenant proposals restrict how a coin can be spent after you bought it and where coins can be transferred. These restrictions can be compared to those that banks might place on specific merchants suspected of engaging in illicit activities. 

Covenants can be useful to upgrade Bitcoin; however, since they are complex to implement and trigger controversy over the cryptocurrency’s fungibility and censorship-resistant property, they have not been seriously considered for inclusion in Bitcoin for a long time. 

Bitcoin can undoubtedly be improved, and BIPs, including covenants, represent proposed changes to Bitcoin’s consensus. 

Covenants are included in Bitcoin Improvement Proposals (BIPs), the upgrade and improvement process Bitcoin undergoes to modify and advance issues like scalability, security and usability.

Covenants allow a Bitcoin script language to prevent an authorized spender from spending on specific other scripts. They describe how to improve Bitcoin in smart contracts, information included in a code that executes when certain conditions are met. 

These Bitcoin contracts could prevent users’ funds from being stolen in case of hacking and can also help scale the network. There are many proposed applications for covenants, from scaling Bitcoin transaction capacity to congestion control, trust-minimized loans and more. These use cases are described in the controversial BIP119, presented by developer Jeremy Rubin as a soft fork, and discussed by the community. 

This Bitcoin Improvement Proposal introduces a change to Bitcoin’s code, which seeks to use a new operation code (opcode). The opcode is OP_CHECKTEMPLATEVERIFY (CTV-style covenant) and enables a limited set of precious use cases without incurring significant risks. 

CTV can potentially help scale Bitcoin through the implementation of Congestion Controlled Transactions. When transaction traffic is very high, fees increase exponentially. Using this CTV, large payment processors can include all their payments in a single transaction for confirmation purposes, saving block space and resulting in faster and cheaper execution.

Covenants can be defined as linguistic primitives (the smallest and simplest “unit of processing” available to a programmer) that extend the Bitcoin script language allowing transactions to restrain the scripts of the redeeming ones. 

In a typical Bitcoin transaction, your Bitcoin is protected with a locking script, whose conditions should be met if you want to spend the coins. Examples of locking conditions can be the denial of expenditure without a signature proving you have the private key that matches the public key; or timelocks, which are similar to covenants and indicate that coins can’t be spent until after a certain number of blocks. 

So whereas in a “normal” Bitcoin script, we only require specific conditions to be met to unlock a particular requirement (sign a transaction with a private key, for example), in a covenant, we go a step further by restricting what you can do with that coin, or where a coin can be spent. 

A Bitcoin covenant is often defined as “a mechanism to enforce conditions on how the control of coins will be transferred in the future” and includes a set of conditions on an unspent transaction[TX] output (UTXO), which defines how the transaction’s relevant coins can be spent.

For example, one wallet can place a covenant on the Bitcoin it holds whitelisting a few related addresses. When this wallet broadcasts a Bitcoin transaction to another wallet, in turn, this wallet can only send the same Bitcoin to addresses included on that whitelist. 

Improving Bitcoin security is one of the most significant advances constantly sought by developers, and covenants might offer a great helping hand in enhancing it.

Besides improved scalability, covenants are helpful for security, especially against some form of the $5 wrench attack. Taking steps to protect your Bitcoin property so that it becomes harder for people to steal is an excellent use case. 

Another good security approach provided by covenants would be to restrict your UTXO to be sent to a multi-sig address after a year, for example. Covenants can also address the difficulty of secure key management, and implementing secure vaults can help with one of the biggest problems of cryptocurrency security. Vaults enhance end-user security by disincentivizing the theft of coins. 

The user employs a mechanism that prevents an attacker from gaining full control over funds despite stealing the private keys used to secure them. This mechanism includes the use of pre-signed transactions with key deletion to enforce a time-lock on funds. 

Covenants can also implement a restrictive mechanism to prevent double-spending attacks in Bitcoin-NG, a Byzantine fault-tolerant blockchain protocol that has been recently proposed to improve Bitcoin’s throughput, latency and overall scalability. 

This mechanism is translated into so-called poison transactions that can be implemented progressively as an overlay on top of the Bitcoin blockchain.

Various prominent Bitcoin experts, including Adam Back, Jimmy Song and Andreas Antonopoulos, have raised some concerns over the implementation of restrictive covenants, in particular with the BIP119.

In particular, Antonopoulos has voiced concerns over “recursive covenants” that the new update could convey, thereby deteriorating the network. A recursive covenant occurs when a programmer restricts a transaction, but he does it in a way that restricts another transaction after that, starting a domino effect resulting in future limitless recursive covenants.

Blacklisting and risks of censorship and confiscation

While locking up where a Bitcoin can be spent is advantageous to ensure more security, it also provides grounds for censorship, and control by governments, which would hinder the very existence of Bitcoin. Authorities could potentially force exchanges to withdraw only to covenants with some control over the coin.

While this same risk already exists, since governments can ask exchanges to send only to addresses with a taproot spend path or multi-sig controlled by them, could the implementation of covenants facilitate malicious purposes where it would make it easier for governments to enforce a sort of on-chain KYC? 

Fungibility threats

Covenants might interfere with Bitcoin’s fungibility — the ability of each Bitcoin to be identical in function and quality.

While useful for security and scalability, covenants would change the properties of specific Bitcoin units, essentially creating different types of digital currency, distinct according to what could be spent or where it could be sent. 

As a result, those who oppose the change argued that limiting how you can spend your Bitcoin would ultimately limit Bitcoin’s use as a digital currency, with inevitable consequences in its value.

There are strong opinions on covenants’ pros and cons; however, debates are healthy and necessary to improve a decentralized and leaderless network. Ultimately, the final decision will be down to the users and node operators who will download the software that better reflects their viewpoint.

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Crypto Exchange Zipmex Moves to Release Some BTC, ETH Holdings This Week

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Crypto Exchange Zipmex Moves to Release Some BTC, ETH Holdings This Week

Shortly after resuming withdrawals for some altcoins, Asian crypto exchange Zipmex announced that it will be easing withdrawal amounts of Bitcoin and Ether later this week.

The statement comes after the platform had assured its users on August 4 that it is “committed to resuming all services on the Zipmex platform ASAP and to rebuild confidence and alleviate customer concerns.”

August 11, 16 earmarked for release

Zipmex, a cryptocurrency exchange with offices in Singapore and Thailand, announced a temporary halt to client withdrawals from the platform back on July 20. While the exchange blamed falling crypto asset prices and loan defaults by industry heavyweights for the decision, it said it will resume withdrawals less than 24 hours after suspending operations.

Now, despite the exchange’s battle with Babel and Celsius, it intends to release a specific amount of ETH and BTC on August 11 and 16, respectively.

Zipmex is planning to release a specific amount of ETH and BTC on 11 and 16 August respectively. We’re working hard to release the balance of Z Wallet holdings ASAP.

Thank you for your ongoing patience and support.

Zipmex Team

#Zipmex pic.twitter.com/moywJffXau

— ZIPMEX (@zipmex) August 8, 2022

Previously on August 2, 100% of users’ SOL was released, 100% of XRP was announced for release on August 4, and Zipmex said it will make 100% of ADA available on August 9, 2022. Stablecoins, on the other hand, will remain inaccessible for the time being.

Meanwhile, in Singapore, Zipmex has requested bankruptcy protection to address its financial concerns by way of a moratorium for five of its businesses. While the hearing is to take place on August 15, it is crucial to reiterate that Zipmex has raised a total of $62.9 million in investment over the course of 6 rounds. As per Crunchbase, Coinbase and B Capital Group were the most recent investors.

That said, co-founder Akalarp Yimwilai had also stated on Twitter last month that the “primary objective at this stage is to raise funds and open up Z Wallet as soon as possible.”

We reiterate that we have an audit trail and written evidence on all sequence of events. However, our primary objective at this stage is to raise funds and open up Z Wallet as soon as possible.

— Akalarp Yimwilai (@akalarp) July 29, 2022

Will the Singapore court go the Vauld way?

Just last week, the High Court of Singapore granted the troubled cryptocurrency lender Vauld a three-month moratorium period. As a result, the corporation will be effectively protected from any prospective legal action from creditors during this time. Therefore, a similar route for Zipmex will allow the platform to resolve its liquidity issues and re-enable its Z wallet.

Just to reiterate, Zipmex Asia Pte Ltd, Zipmex Pte Ltd, Thailand-based Zipmex Company Limited, PT Zipmex Exchange Indonesia, and Zipmex Australia Pty Ltd are among the businesses asking for assistance under Section 64 of Singapore’s Insolvency, Restructuring and Dissolution Act 2018. According to Singaporean legislation, these businesses must be given an automatic moratorium for 30 days or until the court issues a ruling.

What do you think about this subject? Write to us and tell us!

Disclaimer

All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.

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Dave Portnoy’s SafeMoon position is down 94%, claims he’s being sued by project

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Dave Portnoy’s SafeMoon position is down 94%, claims he’s being sued by project

The Barstool Sports founder panic-sold Bitcoin in 2020 and has expressed fleeting interest in digital assets ever since.

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Dave Portnoy's SafeMoon position is down 94%, claims he's being sued by project

Barstool Sports founder Dave Portnoy has watched his investment in SafeMoon (SAFEMOON) crash by over 94%, proving to crypto enthusiasts that he is, in fact, capable of hodling during the bear market. 

The stock trader and media personality took to Twitter on Monday to lament his $40,000 investment in the memecoin, which has fallen to just $2,370.94 after he didn’t withdraw a single token. “Still holding by the way,” Portnoy said. “Diamond hands.”

I put 40k into @safemoon I haven’t withdrawn any. It’s not worth 2.3k. And I’m being sued. https://t.co/qRAyBegQMm

— Dave Portnoy (@stoolpresidente) August 8, 2022

Portnoy claimed that he’s also being sued by SafeMoon, possibly for “trashing” the project on his show, but didn’t elaborate much further. In a separate tweet, Portnoy shared a screenshot of SafeMoon’s sales manager expressing displeasure with the Barstool Sports frontman for giving the company “a bad look and unfair representation.” Portnoy “mentioned his SafeMoon losses on air but failed to mention he hasn’t upgraded his holdings to V2 yet,” the manager said.

And let’s not forget when @safemoon themselves complained about me trashing them. pic.twitter.com/1Fg2i9lijC

— Dave Portnoy (@stoolpresidente) August 8, 2022

Portnoy is no stranger to cryptocurrencies, having bought Bitcoin (BTC) in August 2020 only to sell it one week later due to volatility. He later expressed regret over his lack of conviction and went on to make several additional bets on cryptos, which included SafeMoon.

Related: Dogecoin founder speaks out against ‘meme coins’

As far as prices go, SafeMoon is down over 99% from its all-time high of $0.00001399 in April 2021, according to CoinMarketCap. The coin has a lifetime return on investment of negative 86%. 

SafeMoon was audited in May 2021 by blockchain security firm HashEx. At the time, the firm identified 12 smart contract vulnerabilities, including a “temporary ownership renounce” that made it especially prone to a rug pull.

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Circle freezes blacklisted Tornado Cash smart contract addresses

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Circle freezes blacklisted Tornado Cash smart contract addresses

Stablecoin issuers can blacklist interactions with the Tornado Cash DApp on the Ethereum smart contract level.

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Circle freezes blacklisted Tornado Cash smart contract addresses

Crypto data aggregator Dune Analytics said that, on Monday, Circle, the issuer of the USD Coin (USDC) stablecoin, froze over 75,000 USDC worth of funds linked to the 44 Tornado Cash addresses sanctioned by the U.S. Office of Foreign Assets Control’s Specially Designated Nationals and Blocked Persons (SDN) list. Tornado Cash is a decentralized application, or DApp, used to obfuscate the trail of previous cryptocurrency transactions on the Ethereum blockchain. 

All U.S. persons and entities are prohibited from interacting with the virtual currency mixer’s USDC and Ethereum smart contract addresses on the SDN list. Penalties for willful noncompliance can range from fines of $50,000 to $10,000,000 and 10 to 30 years imprisonment. An estimated $437 million worth of assets, consisting of stablecoins, Ethereum, and wrapped Bitcoin (WBTC), are currently held in Tornado Cash’s smart contract addresses. As a result, issuers are expected to take steps to prevent the transaction or redemption of such assets. 

Both the entities behind USDC and Tether can freeze their stablecoin transfers to and from Tornado Cash on the Ethereum smart contract level. Meanwhile, Palo Alto, California-based BitGo, would also, theoretically, need to restrict access to Tornado Cash to comply with such sanctions. One possible method is suspending the redemption of Tornado Cash-linked WBTC.

As told by pseudonymous DeFi educator BowTiedIguana, the new Tornado Cash sanctions apply across the board for U.S. individuals and entities. Simple interactions such as Gitcoin donations, working for the project, running or downloading its software, visiting its website, and depositing/withdrawing from smart contracts could be interpreted as violations. 

Circle just frozen 75,000 USDC belonging to unsuspecting Tornado users, as well as 149 USDC donated to the project. pic.twitter.com/GBS41FtZvB

— banteg (@bantg) August 8, 2022

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