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Bitcoinmagazine
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A Last Resort: Un'FE'd Covenants For Bitcoin
- Jeremy Rubin's proposal Un’FE’d Covenants offers a new practical option for covenant proposals in Bitcoin without requiring a softfork, unproven cryptography, or exorbitant monetary costs ColliderScript imposes.
- The proposal uses a system of oracles and BitVM based bonds to emulate covenants on Bitcoin, with the oracle entrusted with the enforcement of the covenant conditions.
- Oracles can be federated to minimize the trust required in a single party to enforce conditions, and users can load the resulting address and approach the oracles with the spending transaction, oracle program, and witness data to prove the transaction meets the covenant rules.
- A BitVM circuit can be constructed to verify whether a transaction signed by the oracle matches the conditions of the covenant being enforced, and oracles can be required to post a collateral bond with a BitVM operator.
- The proposal is trusted, with users giving their money to someone else to enforce the conditions of the covenant, but can be secured with a crypto-economic incentive rather than pure trust using OP_RETURN and a BitVM bond scheme.
- However, the trade-offs include requiring the oracle to be online and present to sign, massive liquidity requirements for oracle bonds if the system is widely adopted, and the extra data required to be posted on-chain, making it less efficient than native covenant implementation.
- Overall, the proposal offers a workable way to incorporate covenants into Bitcoin without depending on unproven cryptography or impractical costs, expanding the design space of what can be built on Bitcoin.
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