Let me link to your response to explain my point of view regarding covenants and why, at this point, I prefer to use sidechains rather than modify Bitcoin’s base layer.
Risks of covenants:
- Loss of fungibility. Two bitcoins might no longer be economically equivalent if one can be spent freely and the other is subject to designated uses, conditions, or authorized lists. The market might apply discounts or reject coins tied to certain covenants.
- Censorship and regulatory control. A recursive covenant could require coins to circulate only between approved addresses, preserve a means of confiscation, or impose KYC-like controls on every transfer. The most serious risk would arise if governments, banks, or large platforms mandated the use of such conditional coins.
- MEV and mining centralization. Very broad covenants could facilitate markets and systems similar to Bitcoin accounts. This could create opportunities for Miner Extractable Value (MEV), incentivize transaction reordering, favor miners with specialized infrastructure, and increase pressure to reorganize blocks.
quotingAre we looking for an alternative to lightning then? Because LN is what it is I'm afraid and its design necessarily comes with these tradeoffs.
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If we had covenants I'd be very interested in seeing an implementation of the scaling proposal found in https://github.com/JohnLaw2/ln-scaling-covenants