On the possibility of evil covenants and implications for soft fork proposals

It starts with an acknowledgment of the potential for compromise through multisig setups, which can emulate some of the functionalities proposed by covenants but not without certain trade-offs. Specifically, while adversarial uses of covenants might see only a marginal decrease in operational uptime when replicated via multisig solutions, legitimate applications of covenants could suffer from increased security risks. This symmetry in application yet divergence in risk and utility underscores a broader conversation about the necessity and justification of introducing enhanced functionalities that could otherwise be achieved, albeit less efficiently, through existing mechanisms.

The historical context provided around the CheckLockTimeVerify (CLTV) functionality serves to illustrate this point further. Although CLTV was not initially designed with the Lightning Network in mind, its pre-emulated forms like nLocktime demonstrated significant utility that eventually contributed to the development of payment channels, as well as garnering support from prominent voices within the Bitcoin ecosystem. This underscores the importance of deploying soft fork proposals that are straightforward to verify for safety, have mature implementations, and exhibit clear demand—elements that were all present in the case of CLTV. The narrative suggests that insisting on multisig-based prototypes for functionalities like vaults, which have already shown demand and potential utility, might stifle innovation and delay the realization of benefits that consensus-driven solutions can provide.

Moreover, the discussion touches on the regrettable misuse of the term "covenant," which was originally intended to enhance understanding within the community but has since been co-opted to instigate fear and misinformation. This manipulation of terminology points to a larger issue: the potential abuse of new functionalities does not, on its own, justify restricting their development or integration into Bitcoin’s consensus rules. The text argues for a balanced approach, recognizing that while covenants and similar technologies can be used malevolently, they also offer opportunities to improve Bitcoin's privacy, fungibility, scalability, and overall utility as a tool for financial freedom.

The potential introduction of "perpetual KYC contracts" is scrutinized as a case study in the ethical considerations surrounding soft fork proposals. Despite the apparent risks associated with enabling "evil covenants," the argument is made against outright rejection based on these potentials alone. Highlighting alternative methods that oppressive regimes could employ to exert control over cryptocurrency usage, the narrative posits that Bitcoin could inadvertently become a tool for tyranny if it lacks the capabilities to implement restrictive measures itself. However, the underlying message is one of optimism about the positive aspects of covenant capabilities, drawing parallels with other dual-use technologies that can serve both oppressive and liberatory purposes.

In conclusion, the discourse advocates for a pragmatic and balanced exploration of technological advancements within Bitcoin. It calls for a focus on leveraging the positive capabilities of covenants and similar functionalities to promote financial freedom and integrity, while also being mindful of the ethical implications and potential for misuse. This balanced approach emphasizes the need for continued dialogue, ethical usage, and robust legal frameworks to navigate the complex interplay between innovation, utility, and morality in the evolving landscape of cryptocurrency.