In the ever-evolving landscape of blockchain technology, Jeremy Rubin has recently made waves with his proposal on Un’FE’d Covenants (Functional Encryption). As discussions on covenant strategies for Bitcoin continue to heat up, this innovative approach offers a practical alternative without the need for a soft fork or the burdens of complex cryptographic implementations.
The crux of the Un’FE’d Covenants lies in its unique security model. Traditional covenant proposals often compel users to adopt costly methods or untested technologies, but Rubin’s framework eliminates these barriers. By leveraging a system of oracles and BitVM-based bonds, covenants can be simulated on Bitcoin immediately, bringing forth fresh opportunities.
The backbone of the Un’FE’d Covenants model is the employment of oracles that enforce specific covenant conditions. Here’s how it works:
- The oracle takes custody of the funds, ensuring that covenant requirements are met.
- Thanks to Taproot, oracles can utilize modified keys by tweaking public keys through hashing, allowing for easy engagement with covenant conditions.
- Users can offload the burden of state tracking to the oracle, significantly diminishing the risk of state corruption.
Notably, oracles can be federated, minimizing reliance on a single entity and enhancing trustworthiness. When users wish to enforce their covenant, they can submit a transaction for the oracle’s approval—if it aligns with the covenant rules, the oracle endorses it.
While the oracle’s role is pivotal, Jeremy’s proposal ingeniously integrates crypto-economic incentives to fortify the system against breaches of trust. With the BitVM Bond, a structured verification process is established:
- Oracles deposit a collateral bond with BitVM operators.
- This guarantees that the financial stakes deter oracles from violating covenant terms.
This innovative approach provides a safety net for users: should an oracle fail in its role, they incur a financial penalty, enhancing overall security.
Every proposal has its complexities, and the Un’FE’d Covenants model is no exception. While it introduces flexibility into the Bitcoin ecosystem, several significant trade-offs exist:
- Oracles must remain online to execute covenant enforcement.
- The liquidity requirements for oracle bonds can be daunting, creating inefficiencies.
- More data must be posted on-chain, leading to increased blockspace usage.
In conclusion, while Un’FE’d Covenants may not rival native implementations in efficiency, they present a reliable alternative amidst growing concerns over Bitcoin’s development. This proposal serves as a pragmatic solution, allowing Bitcoin to adapt and extend its capabilities without risking the compromise of security and usability.
