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

Recent discussions and developments in the Bitcoin community highlight the growing interest and potential application of covenants through CheckTemplateVerify (CTV) for enhancing security features like vaults, as well as supporting innovative use cases. Notably, two engineers from Blockstream acknowledged the utility of CTV for Liquid, a popular Bitcoin hardware wallet CEO expressed intentions to implement vaults, and the CEO of Bitcoin’s exclusive custodial insurance product also showed interest in vaults. Additionally, the successful testing of an Ark prototype based on CTV demonstrated significant reductions in required interactivity, underscoring its practical value beyond theoretical discussions.

The conversation around Bitcoin's security enhancements and operational efficiencies continues to evolve, with recent breakthroughs primarily in construction methods like BitVM or ColliderScript that aim to replicate certain functionalities without necessitating consensus changes. This indicates a shift towards more practical implementations of vaults, moving from whiteboard concepts to real-world applications. The debate extends to the readiness of hardware and secure enclave vendors to support CTV-like functionality, highlighting concerns over "blind signing" risks during key ceremonies, as referenced in the critical perspective on blind signing practices.

Bob McElrath's insights, drawn from years of researching vaults at Fidelity Digital Assets, suggest that while vaults are conceptually beneficial, their practical implementation faces challenges. These include the complexity of managing reactive models, such as chain monitoring or watchtowers, and the difficulties associated with handling duplicate sets of keys. Despite these challenges, the comparison with Lightning Network (LN) reveals that vaults might present less complexity due to their non-stateful nature, implying no need for off-chain updates with a counterparty. This comparison suggests that, although both systems aim to enhance Bitcoin’s security and usability, they each come with distinct operational challenges and complexities.

Furthermore, the discussion touches upon the broader implications and potential use cases enabled by combining OP_CTV and OP_CSFS, including improvements to transaction withholding strategies as illustrated by TxWithhold smart contracts. This combination could significantly expand the capabilities of already deployed Layer 2 solutions like the Lightning Network by allowing transactions in which one is not a direct counterparty.

In considering the development of BIP119 from the ground up, there's a clear stance against incorporating legacy script due to its inefficiencies and potential to increase the DoS attack surface. This position emphasizes the importance of adopting modern, efficient scripting methods to ensure not only the safety but also the efficiency and reviewer comprehensibility of proposed changes. The dialogue reflects a thoughtful consideration of both the technical and practical aspects of implementing new features within the Bitcoin protocol, underscoring the community's ongoing efforts to balance innovation with security and usability.