How the potential adoption of a BIP 119 a Bitcoin Soft fork proposal 'OP_CTV' adds scalability, privacy and DeFi applications to Bitcoin
There's a long standing meme in the Bitcoin community, suggesting that all alt-coins are testnets for Bitcoin. The concept being that new ideas are first tested and refined on these alternative blockchain networks and the good ideas are eventually adopted by Bitcoin.
The significance of this meme became apparent this year with the rising popularity of ordinal inscriptions. Developers discovered a way to inscribe images and JSON data onto the Bitcoin blockchain, enabling NFTs and Memecoins to exist within the Bitcoin network.
NFTs and Memecoins represent one aspect of the 'crypto' world that, until recently, was largely external to Bitcoin. Another sector of crypto, 'DeFi' (Decentralized Finance), is also likely to built on the network.
If you’re immediately repulsed by the idea of ‘defi’ on Bitcoin because of the history of scams in crypto, it’s understandable but buried within this genre of applications there are ideas that could be usefully applied to Bitcoin.
Cryptography ideas which increase privacy, scalability, or offer better custody protection are attractive to pursue and Jeremy Rubin, author of soft-fork proposal BIP 119, argues all this and more could be added to Bitcoin through the adoption of a new OP_CODE OP_CHECKTEMPLATEVERIFY (OP_CTV).
OP_CTV allows you to codify rules on how and when coins can be spent. Technically speaking it facilitates the creation of Bitcoin addresses that are linked to a commitment hash of specific components in a future transaction, particularly the outputs. This commitment is unveiled when the funds are redeemed, authorizing the spend. In essence, if coins are sent to such an address, they can only be spent under the conditions predefined by the hash, a concept often referred to as a covenant.
Currently, the Bitcoin Network has two types of transactions: confirmed transactions and those in the Mempool. OP_CTV introduces a third category, committed by OP_CTV. This means that incoming coins committed by OP_CTV are unspendable until confirmed, but the covenants are set, ensuring recipients that these coins can’t be double-spent.
Jeremy Rubin has written extensively about the potential applications of OP_CTV. They could be broadly summarized as:
Custody Solutions: Codifying the movement of funds for scenarios like inheritance schemes (and many other use cases).
Congestion Control: Committing transactions via OP_CTV to be scheduled when fees are lower in high fee environments.
Decentralized mining: Decreasing minimum viable miner payouts
Improving privacy: OP_CTV could possibly be used to allow users to trustlessly pool their funds together into a single UTXO in a way that would increase privacy.
Decentralized Options: OP_CTV can facilitate the creation and redemption of trustless options on the Bitcoin network. This involves protocols where underwriters and users engage in atomic swaps with specific conditions encoded in the script, allowing for the creation of options without centralized exchanges.
In January 2022, a bug bounty was established to incentivize the research, development, and vetting of BIP 119, offering 5.3 BTC for identifying a fundamental issue with OP_CTV. In September 2022, AJ Towns discovered a bug, acknowledged by Jeremy Rubin as significant but not necessitating changes to the BIP itself. The majority of the bug bounty remains unclaimed, indicating no critical flaws have been found.
Any modification to Bitcoin's protocol, particularly those introducing new transaction types and scripts, demands rigorous scrutiny to maintain the network's security and stability. For instance, concerns have been raised about OP_CTV potentially affecting the fungibility of Bitcoin UTXOs, creating a distinction between constrained and unconstrained coins.
Is this a legitimate concern? No, I think you can reason your way to see that this isn’t the case considering that Bitcoin's protocol inherently supports various types of transactions (e.g., multi-sig, time-locked, etc.). The addition of OP_CTV can be seen as another feature in this suite. Each transaction type serves a specific purpose and does not inherently degrade the fungibility of Bitcoin. Just like multi-sig or time-locked transactions didn't fundamentally alter Bitcoin's fungibility, OP_CTV can be viewed similarly.
Nonetheless these debates highlight the complexities and philosophical nuances involved in evolving Bitcoin's protocol, underscoring the need for extensive debate before any changes can be made.
Many Bitcoiners supported the Taproot upgrade in 2021, only to later show regret upon realizing the implications when it enabled Ordinals on Bitcoin.
The nature of any change to Bitcoin’s protocol is that it’s not just a technological update; it's a community-driven decision reflecting the collective vision for Bitcoin's future. At the very least, we better understand what changes are being proposed before we make any.