Scalability, speedy trials and covenants: Decoding Bitcoin’s BIP-119 proposal
Navigating through the crypto space can be a confusing experience with various synonyms and acronyms bombarding you at every turn. Bitcoin Improvement Proposals or BIPs are one such term. But fear not, Luno is on hand to help decode this process and the discussions around it. Read on to find out more about BIPs and discover why one, in particular, is causing controversy among the development community.
What is a BIP?
Before we can talk about BIP-119 let’s break down exactly what a Bitcoin Improvement Proposal (BIP) is. As the name suggests, a BIP is a formal proposal of an idea for how to improve the way Bitcoin works. You can think of the process like a local council meeting where people are given time to propose ideas or air their grievances. While everyone is given a fair hearing, whether or not your idea will be accepted or rejected is out of your control.
The formal aspect of the BIP process takes the form of a ticketing system, where you apply for a BIP number and it will then be reviewed by an editor who will then assign it a BIP number. From there it is then added to a repository where they are assigned by topic areas, but the chances of it being implemented by anyone is not guaranteed.
What is BIP-119?
Proposed by Jeremy Rubin, a Bitcoin Core developer, BIP-119 is a soft fork or change to Bitcoin’s code that seeks to make use of a new operation code (opcode). This opcode called OP_CHECKTEMPLATEVERIFY (CTV) allows for the implementation of covenants.
Covenants are restrictions on where Bitcoin can be spent or transferred to after you’ve bought it. These restrictions are similar to those your bank might place on certain merchants who are suspected of committing fraudulent activities. For example, one wallet might place a covenant on the Bitcoin it holds via a whitelist of related addresses. Should this wallet send Bitcoin to another, that wallet in turn can only send the same Bitcoin to addresses included on that whitelist.
During a recent Twitter Spaces conversation about BIP-119, Jeremy Rubin broke down the name as follows:
“Basically, it’s called Check-Verify because it checks the condition and fails the script if that condition is not met and it’s called Template because this sort of combination of properties of the transaction that it commits to is essentially a template for a transaction saying this pending transaction must be made according to this template, otherwise, you can’t spend this coin.”
So, why are they useful for Bitcoin? Well, covenants are useful for constructing smart contracts, code that executes once certain conditions are met. Within the Bitcoin network, these smart contracts could be used to prevent your funds from being stolen in case of hacking and help scale the network.
CTV has the potential to help scale Bitcoin through the implementation of Congestion Controlled Transactions. When lots of people are transacting at the same time, they become very expensive. Using CTV, large payment processors can include all their payments in a single transaction commitment for confirmation purposes.
Why is it so controversial?
While the proposed change comes with a lot of benefits, some among the Bitcoin community are critical, worrying that BIP-119 will hinder Bitcoin’s fungibility – the ability of a commodity to be indistinguishable in quality from another of the same kind. A key selling point of the cryptocurrency, Bitcoin’s fungibility rests on the fact that each bitcoin is identical in function and quality.
Covenants, while useful for security and scalability, would change the properties of specific Bitcoin units, essentially creating different types of digital currency in terms of what could be spent or sent where. As a result, those who oppose the change argued that limiting how you can spend your Bitcoin would ultimately limit Bitcoin’s use as a digital currency, harming its value in turn.
Others in the community feel that they are being pressured to rush to implement this proposal that, as outlined above, could have serious effects on Bitcoin’s value. This ability to ‘speed up’ the time taken to make a decision on proposed changes is referred to as a Speedy Trial, and has been used in the past to activate upgrades. One such example was Bitcoin’s Taproot upgrade, which added smart contract flexibility and privacy to the network, and gave miners three months to signal support for the Taproot upgrade.
This time, however, some feel that given the serious impact this upgrade could have on Bitcoin, the proposal should be further reviewed and alternatives examined.
Approaching change cautiously
Reflecting on his proposal and the future of Bitcoin during the live session, Rubin highlighted the agreed-upon need for scaling the digital currency to the largest number of people possible without violating the soundness of the system.
“That’s where something like CTV can fill the gaps […] We have to approach change cautiously and think it through, but we can’t just sit here on our asses and pretend like we can just wait forever. Because that day will come where it’s [Bitcoin] just not changeable anymore. And if it isn’t scalable enough, by the time that day comes, then we are not going to have self-sovereign money for people,” Rubin concluded.