CTV+CSFS: Can we reach consensus on a first step towards covenants?

The discussion revolves around the concept of zero-knowledge proofs and their application in creating covenants within the Bitcoin protocol, specifically addressing how these can be used to constrain a coin and its possible transactions in a specific manner. The notion of using a SNARK verifier as an alternative to the traditional script interpreter is explored, highlighting its potential in enforcing properties on spending transactions. This approach enables the creation of constraints, such as ensuring an output redeem script adheres to predefined rules, thus introducing the possibility of recursive verification. The conversation acknowledges the term "covenant" might not precisely capture the broader legal constructs it is intended to represent within the context of Bitcoin's scripting capabilities.

Further analysis is provided on alternatives for developing eltoo, a proposal aimed at enhancing Bitcoin's layer 2 solutions. Among the discussed methods, APO+CTV+standardized_annex is identified as the most efficient, offering improvements over the original idea of eltoo by enabling state transactions to be re-bindable and facilitating off-chain constructions involving multiple parties. This section also touches upon technical challenges and efficiencies related to transaction size and operational codes necessary for implementing such features.

The discourse extends into concerns regarding the taproot soft fork, emphasizing the importance of practical usage over perceived technical merits in evaluating new features. A significant point of discussion is the potential risks associated with more powerful opcode primitives, particularly in the context of transaction withholding contracts. Such contracts could pose threats to the Lightning Network (LN) by incentivizing miners to delay the confirmation of specific transactions, demonstrating the need for mechanisms that prevent one UTXO's script execution from referencing another UTXO spend.

The concept of a one-step vault is introduced as a simple yet effective security measure, leveraging timelocked transactions to enhance custody solutions without overly complicating the protocol. However, the implementation of such features raises questions about hardware support and the reliability of cryptographic APIs in ensuring secure transaction verification, especially in scenarios where hardware may be compromised.

Concluding the discussion, there's an emphasis on the necessity of opcode improvements that bolster self-custody for Bitcoin users without introducing additional risks or complexities. The sentiment reflects a universal desire among Bitcoin enthusiasts for enhanced security and usability in managing their digital assets, underscoring the ongoing efforts to develop accessible and robust custody solutions within the ecosystem.