Summary
TLDR: Covenants are powerful restrictions on how coins can be transferred in Bitcoin, enabling smart contracts and new possibilities for programmability. They indirectly provide conditions for state transition and implement a form of smart contract based on verification rather than computation. By combining covenants with other opcodes like DLC, possibilities such as reducing delays in opening DLCs and mitigating excessive blockspace demand can be achieved. Covenants can also address issues like the L2 exit problem and provide solutions for expedited exits from layer 2 solutions. Various concepts such as Non-Interactive Channels, Timeout-Trees, Ark, Darkpools, and PathCoin can be developed using Covenants.
Key Points
1. Bitcoin’s scripting language has limited opcodes, restricting the programmability scope of Bitcoin and making it challenging to implement smart contracts.
2. Bitcoin can only support verification as a form of computation, not general-purpose computation, leading to limitations in achieving state transitions through computation.
3. Covenants are a method of specifying how funds can be used, effectively earmarking UTXOs to be distributed in a specific manner and indirectly providing conditions for state transition.