Bitcoin covenants are like extensions to the Bitcoin code that confers an extra level of protection to stored Bitcoin by enabling the holders to have control over Bitcoin that has been stolen. With the way Bitcoin and most cryptocurrencies were created, if you transfer them to a wallet other than your own, your ownership ends there. You can only retrieve it if the recipient decides to send it back.
With the proposed Bitcoin covenants, it would be possible for you to transfer Bitcoin to someone with some attached restrictions in the form of code. You could make it so that the amount of Bitcoin can only be transferred back to your wallet or that it has to be spent only after a certain amount of time or whatever rules you can imagine.
You could allow or block certain wallets as well. You can even use a covenant to act as escrow to hold on to a certain amount of BTC before it is available.
Pros of Bitcoin covenants
With the way Bitcoin was created, if your private key gets stolen and your assets are transferred to another unknown wallet, there is no way to recover the stolen funds or a way to find out the owner of the wallet. This is where Bitcoin covenants come in.
As mentioned earlier, covenants offer an additional layer of protection against online theft. If your Bitcoin is touched by covenants, that particular amount becomes protected by restriction. Bitcoin covenants restrict how the thief spends the Bitcoin because you’re in control. You can decide where the thief spends the Bitcoin or set it up so it can only be returned to you.
Secondly, Bitcoin covenants elevate the scalability of Bitcoin. This way, multiple transactions can be carried out together to take lesser block space through a covenant; this will also reduce the time taken to process transactions and the gas fees.
Thirdly, Bitcoin covenants increase its utility. It adds more value to Bitcoin by taking it from a value transfer to something close to smart contracts. This way, you schedule transactions and payments, have agreements with payment mechanisms and plug the transfer of Bitcoin based on fluctuating market prices.
Cons of Bitcoin covenants
One of the major disadvantages of Bitcoin is its lack of fungibility. If bitcoins were fungible like NFTs, they could maintain their status even after adopting covenants, but the situation is not so.
It is known that Bitcoins without covenants retain their value and are greater than bitcoin that has been touched by covenants. This creates complications when it’s time to transfer assets and stresses out the trader carrying out the transaction.
Another disadvantage of Bitcoin covenants is that it complicates things. There are so many individuals that do not fully understand the concept of Bitcoin as a decentralized digital currency; covenants will not help matters.
Although Bitcoin has gained widespread popularity, its simplicity still leaves much to be desired. Many industry shakers like Astro Africa have a knowledge-based blog that makes it easier for traders to understand the concept of Bitcoin fully; covenants will relegate the work they have already done by extending the learning curve and hindering mass adoption.
Covenants, as we’ve always known, can be recursive because, when added, they can go beyond one transaction and maintain a connection with the amount after the first transaction. For example, if, as a trade, you initially added a covenant that dictates that 10% of the original amount gets back to your wallet, regardless of whoever sent it to you, it will get the entire amount back to you in 10 transactions. This leads to a further loss of fungibility.
Where to convert Bitcoin for cash and get paid instantly
If you’re a new crypto trader and you’ve been looking for a good platform to trade crypto safely and without stress, you’ve come to the right place. Astro Africa is an excellent exchange platform dedicated to ensuring that crypto traders all over Nigeria and Ghana are experiencing good trading services.
The platform makes it easy for anyone to trade Bitcoin for money and get paid instantly. On Astro Africa, Bitcoin is exchanged for cash at the best rates because that is the only way users can maximise their profits. If you’re still doubting Astro Africa as an effective exchange platform, you can quickly search our platform on review sites to see how users praise us for never failing on our promises.
You, too, can enjoy stellar trading services by quickly downloading the Astro Africa app from App Store or Google Play store, creating an account, and trading your Bitcoin for money.