Crypto glossary
Covenants (OP_CTV, OP_CAT)
Covenants are proposed Bitcoin features that let an output restrict how its coins can be spent in the future, enabling vaults and new scaling designs.
Today a Bitcoin script can check who is spending an output, through signatures, and when, through timelocks, but not where the coins go next. A covenant adds that ability: the script can require that the spending transaction send funds to specific outputs or follow a template. Several proposals compete, including OP_CHECKTEMPLATEVERIFY (BIP-119), the reactivation of OP_CAT (BIP-347), which Satoshi disabled in 2010, and other opcodes such as CHECKSIGFROMSTACK.
Supporters say covenants would enable vaults, where stolen keys cannot move funds immediately, more efficient channel factories and payment pools for Lightning, better layer 2 designs such as Ark and BitVM bridges, and congestion control for exchanges. Some proposals have been tested on signet, a Bitcoin test network.
Opponents worry that powerful covenants could enable recursive restrictions, such as coins that can only ever move to approved addresses, or encourage complex applications and MEV on Bitcoin. Any of these changes would require a soft fork with broad consensus, and the debate over which approach to adopt, if any, has gone on for years.
Example
With a covenant-based vault, a user's coins can only move first to an unvaulting address with a one-day delay, during which a recovery key can claw them back if a thief initiated the transfer.