Bitcoin covenants are coming — OP_CAT gets formally introduced as BIP-420

Source: Crypto Briefing

The OP_CAT covenant proposal has been formally introduced as “BIP-420,” with the aim of enabling smart contracts, secure bridges, and on-chain trading on the Bitcoin network.

introducing BIP-420: formal Bitcoin Improvement Proposal for OP_CAT

it’s a historic day!

today, after a long wait, the OP_CAT proposal formally received a BIP number. meet BIP-420!

BIP-420 enables covenants on bitcoin, allowing for smart contracts, secure bridges, on-chain… pic.twitter.com/z6ItJT7LX4

— Udi | BIP-420 🐱 (@udiWertheimer) April 22, 2024

The proposal, authored by Ethan Heilman and Armin Sabouri, seeks to reintroduce the OP_CAT opcode to Bitcoin via a backward-compatible soft fork by redefining the opcode OP_SUCCESS126. This is the same opcode value used by the original OP_CAT, which was disabled by Satoshi Nakamoto in 2010 due to concerns surrounding potential vulnerabilities.

“BIP-420 enables covenants on bitcoin, allowing for smart contracts, secure bridges, on-chain trading, zk proof verification and more,” OP_CAT advocate and co-founder of Taproot Wizards Udi Wertheimer said.

Bitcoin covenants

Covenants on Bitcoin are advanced scripting features that allow for specific conditions on how bitcoins can be spent in future transactions. They could enable use cases such as creating secure “vaults” for reversible transactions, automated recurring payments, time-locked transfers for inheritance, and complex financial instruments like escrows and bonds.

In this sense, Bitcoin covenants currently exist as proposed mechanisms to enforce the conditions on how BTC will be transferred in the future. They serve as a set of rules that govern how a particular Bitcoin can be spent, adding an extra layer of security and functionality to the network. Bitcoin covenants operate through Bitcoin’s scripting language, setting forth conditions that must be met for a Bitcoin transaction to be processed.

There are different types of covenants, each with its own set of advantages and disadvantages. The most common types include:

1. Value-based covenants: restricts the value of the output of a transaction.

2. Address-based covenants: restricts the address of the output of a transaction.

3. Script-based covenants: restricts the script of the output of a transaction.

Bitcoin covenants could revolutionize the way we use Bitcoin today by enabling a wider range of financial products and services to be built on top of the Bitcoin network. They could make Bitcoin more versatile, allowing for more complex transactions and smart contracts.

However, the implementation of Bitcoin covenants is not without challenges. The primary risks include potential issues with fungibility, added complexity, and the introduction of new security vulnerabilities. The concept of covenants in Bitcoin has been discussed since at least 2013.

Expanding functionality

According to the proposal, the OP_CAT opcode would simplify and expand Bitcoin’s functionalities, making decentralized protocols more practical and supporting advanced multi-sig setups. Essentially, OP_CAT would significantly increase the power and flexibility of Bitcoin scripting, making it easier to develop more sophisticated applications directly on the Bitcoin blockchain.

Notably, the chances of an OP_CAT soft fork actually happening depends on a combination of factors that include technical capacities from the core developers, on-chain security considerations, and community consensus.

OP_CAT is not the only Bitcoin covenant proposal under discussion though. Other proposals include Check Template Verify (CTV), OP_CHECKSIGFROMSTACK (CSFS), and LNHANCE, each varying in its approach and trade-offs and at different stages of research and debate.

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Author: Vince Dioquino