Nostr Web Client

To use a UTXO in a transaction, you have to meet its demands. Often this requires providing signatures (proof of keys) but it can also depend on other things such as the block height (check-lock-time-verify etc.). You, as recipient, encode these rules into the address you provide to the sender. You opt-in to the rules you want to apply.

“Covenants” allow you to opt in to more rules, such as where the funds can be spent to. It’s still opt-in. You choose to encumber your addresses or not. You can choose not to, just as you can choose not to use multisig.

Even if you choose not to use this feature, you benefit when others do so. Covenants allow denser use of block space, which means (all other things equal) lower fees as more can get done in fewer/smaller transactions.

oobiyou 1y ago

Thank you for this. Interested to learn more (🐇🕳️). Wouldn’t this also mean exchanges and institutions could put restrictions on coins transferred to you from them? Is this a concern?

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Discussion

jimbocoin 🃏 1y ago

The recipient is the one who decides the unlocking requirements, not the sender.

When you send Bitcoin to someone, they provide an address. That address is a hash of a script they’ve chosen. You don’t get to choose the script parameters.

What the sender could do is make a UTXO that, say, promises you some coin, and also promises coin to a bunch of other folks. To use your coin, you first need a transaction that pays out to you (and everyone) and then a second transaction to actually spend. So, the fees could be potentially high, since it takes two TXs and there may be e a lot of outputs (many bytes) for the first one.

oobiyou 1y ago

Oh, ok. I understand. Thank you! 💜🫂💜