Instead of outright preventing an output from being spent, which could contravene the covenant's conditions, this protocol allows the transaction to proceed but penalizes the spender if they violate the set rules by slashing their funds. This method is considered less secure than using specific opcodes like FE or ColliderScript for enforcement since it relies on financial disincentives rather than direct prevention. However, its efficiency, lack of new cryptographic assumptions, and compatibility with current Bitcoin infrastructure present clear advantages.

The protocol draws parallels to BitVM in its operational mechanics, though it was later clarified that BitVM does not employ this exact strategy. In essence, the core issue tackled by slashing covenants is proving that two signatures, one verified by Bitcoin’s CHECKSIGVERIFY and another encoded for operation in a simplified script (Small Script), are identical without requiring direct comparison. This is achieved through innovative uses of existing Bitcoin script capabilities and Lamport signatures for authenticity verification, circumventing the need for complex cryptographic operations directly within the script itself.

A detailed explanation of the process reveals a two-part script system where the first part enforces the covenant as long as the provided spending signature matches the encoded version. The second part introduces a mechanism to punish discrepancies between these signatures by allowing anyone to slash the funds of the violator under specific conditions. This punishment comes in the form of transaction fees incurred by processing the large, and therefore costly, transactions required to execute the slash.

Interestingly, while this concept is developed with Bitcoin in mind, it is noted that implementing such a system on Ethereum could simplify its construction due to the platform's inherent flexibility. Additionally, the discussion hints at potential expansions of this model to accommodate dynamic cosigner groups through advanced cryptographic proofs, further broadening the applicability and resilience of covenants within blockchain systems.