it’s easy to spot this kind of behavior— if you’re providing the bitcoin address to send funds to you can have confidence that your funds are unencumbered
the usual argument is that you can do what you describe today merely by making all funds require a signature from another party (you can’t spend them w/o the other party’s explicit sign off). this idea is used extensively in lightning to ensure funds end up in agreed upon places
Yes it course we can know if we receive a coin that has a covenant impairment. And I also understand the potential benefits..That is not the concern.
The problem is that covenants will hurt fungibility by creating classes of coins that have or do not have covenants. This can be much easier to enforce than a multisig scheme. Ultimately exchanges, custodian's and merchants can be forced to only accept coin with approved covenants.. while the captured institutions will have he power to add approved conenants. I can foresee price fragmentation between coins with or without various convenient impairments. Ultimately you will have no choice but to use the approved coins for nearly transactions.
If Bitcoin loses it's special qualities as an uncensorable bearer asset, it i
Will be no different that USDC, JP Morgan coin, or a CBDC, and therefore no more valuable.
Lightning channels exist and lightning payments are sometimes preferred by people, so this scenario you describe already exists even without a change to bitcoin
i would conduct all small daily purchases in lighting if i could.
bitcoin for bills.
Lightning coins are easily withdrawn to be on-chain without any encumbrance to your coins afterward. I don't see how financial authorities/institutions can restrict that or use lightning to segregate/control coins. I don't see the enforcement mechanism.
Are you suggesting all on-chain transactions can be effectively stopped?. Maybe in the extreme case, but has serious property rights issues and hard to enforce worldwide. Adding a covenants erodes your property rights gradually, until you have only the illusion of control of your property. You effectively will need permission to use your coins, just as you do with a Visa card today.
The more programmability that is added to the L1 protocol, the larger the attack vector. The legacy system will use every tool it can to make Bitcoin submit to its control.
