Perpetually KYC'd Coins Using Evil Covenants

Perpetually KYC'd Coins Using Evil Covenants

Original Postby sanket1729

Posted on: February 13, 2024 23:50 UTC

The discussion on evil covenants within cryptocurrency systems, particularly Bitcoin, sheds light on the nuanced aspects of implementing such functionalities without introducing new risks.

It's noted that evil covenant capabilities are not novel threats within the digital currency space, as altcoins with significant market capitalizations already possess such features and have not shown to cause detrimental issues. Furthermore, the current scripting abilities in Bitcoin provide for the implementation of evil covenants, suggesting that their potential risks are already accounted for within the ecosystem.

The conversation then shifts towards mitigating concerns related to the high interactivity requirements of these covenants. A proposed solution involves incentivizing compliance through a transition into scripts controlled by internal keys, possibly held by governing entities. This setup could enforce users to adhere to specific covenant conditions or face the freezing of their funds by the government for policy violations. An alternative, simplified approach considers separating the freezing functionality from the Bitcoin script itself by incorporating a designated freeze key. This method would utilize CAT and CSFS to ensure that all outputs spending from the covenant input necessitate the same freeze key for transactions, thus allowing the government to control and dynamically update a list of permitted addresses.

The feasibility of these approaches hinges on technical intricacies, such as the limitation posed by the 520-byte constraint on CAT applications and the potential use of workarounds like CODESEPARATOR. Despite these challenges, there's an acknowledgment of successfully employing similar strategies in different scripting contexts, indicating a willingness to explore and refine these solutions further. The discussion underscores the importance of practical considerations in the deployment of evil covenants within Bitcoin's framework, highlighting the balance between innovation and security in the evolving landscape of cryptocurrency.