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Scaling Bitcoin: How Covenants Could Power the Next 100M Users

🤝 Bitcoin covenants are a powerful innovation that could enhance scalability and strengthen both its layer 1 and the Lightning Network.

Author

Hector Alvero
March 18, 2025

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Featured Article

As Bitcoin matures, the demand for enhanced functionality and security becomes more pressing. Bitcoin covenants could be a pivotal innovation—unlocking greater scalability and strengthening both Bitcoin’s layer 1 and the Lightning Network.

Defining Bitcoin Covenants

In traditional finance, covenants are agreements that set conditions on how funds can be used. Bitcoin covenants function similarly, embedding spending rules directly into Bitcoin’s scripting language. These rules restrict or condition how specific bitcoins can be moved, adding a new layer of control and security.

By introducing this programmability feature, covenants could enhance functionality, security, and efficiency—while reducing fees.

How Bitcoin Covenants Work

When initiating a Bitcoin transaction, users can apply a covenant that sets conditions for spending the involved bitcoin. These conditions can range from simple timelocks to complex multi-signature rules. Once deployed, the bitcoin must be spent according to these predefined rules, enhancing security and functionality.

Use Cases of Bitcoin Covenants

• Vaults: Implement timelocks to prevent unauthorized spending, protecting funds even if private keys are compromised.

• Payment Channels: Enable faster, off-chain transactions by reducing on-chain confirmations, lowering fees, and improving scalability.

• Escrow Services: Facilitate trustless, transparent transactions without intermediaries.

• Conditional Payments: Allow funds to be released only when pre-agreed conditions or milestones are met.

Bitcoin covenants open the door to more secure, efficient, and programmable financial transactions.

Interested in the challenges and implications of implementing covenants? Read the full post here to find out more.

Meet the Team

You might have heard about our COO, Hector Alvero’s well-known piece on orange-pilling your barber…

But did you know he also runs Salon Capes, a business specializing in custom-branded salon and barber apparel—including Bitcoin-themed capes? 💇‍♂️⚡

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