What are Bitcoin Covenants? A Guide for Beginners


Bitcoin is a decentralized mode of payment, allowing traders to carry out transactions more feasibly. Developers are introducing the concept of Bitcoin covenants in the crypto space.

However, using Bitcoin covenants has divided the masses into two groups, one against it and the other in favor. In this article, we will get an insight into Bitcoin covenants, their benefits, downsides, and their role in the crypto sphere.

Understanding Bitcoin Covenants

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In property law, the usage of any product can be restricted. A covenant is a contract that limits the use of such products. In the crypto space, the term Bitcoin covenants refers to limiting the use of Bitcoins; therefore, any new seller in the market would have a controlled ownership over his coins.

Although Bitcoin is a private property, Bitcoin covenants still allow the limited use of coins. It provides the ownership of currency to the traders but limits what they can do with it in the future.

Working of Bitcoin Covenants

Bitcoin covenants are not similar to multiple conditions that are imposed on Bitcoins. Any Bitcoin transaction is completed when the owner meets specific requirements and conditions. The private and the public keys used for the wallet should be similar.

In addition, the owners are limited to spending a certain amount of coins depending on the number of blocks through time lock.

Bitcoin covenants are a step ahead as they restrict the utilization of these coins. It thoroughly explains the purpose of unspent coins through defined conditions. It also limits illicit activities through whitelist addresses. If someone gets his hand on the wallet, he can only transact with these addresses.

Pros of Bitcoin Covenants

Bitcoin covenants are greatly helping the developers in improving Bitcoin security. They are used to avoid illegal activities and scams in crypto. It helps in securing the wallets in a better way that makes it difficult for the hackers to attack. Moreover, Bitcoin covenants also address the unspent transaction issue, allowing a limited transaction count.

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Bitcoin covenants also solve the scalability issue, allowing multiple channels in a single transaction. This also decreases the network congestion problem. The time lock in Bitcoin covenants provides restricted control to the user who gets access to the currency, providing additional security.

Cons of Bitcoin Covenants

Bitcoin covenants also have certain downsides. A few developers think that using Bitcoin covenants can affect the fungibility of Bitcoin or alter the actual identity of Bitcoins. It might end up creating a new kind of currency. In addition, the recursive covenant effect could harm the crypto space.

Bitcoin covenants are complicated to handle; therefore, new traders and users might find it challenging to use and implement them. In addition, the higher authorities might force traders to use Bitcoin covenants to control all crypto transactions.

Moreover, beginners might use Bitcoin covenants without understanding the complete procedure, fall into a trap, and lose their currency.

Role of Bitcoin Covenants in Avoiding Thefts

Illegal activities and cyberattacks are among the major cons of using crypto assets. Hackers can quickly get hold of wallet keys and loot away all the currency. Bitcoin covenants address this issue, providing additional security to the currency through vaults.

These vaults secure the private crypto keys, making Bitcoin transactions safer and more reliable. In addition, vaults also prevent hackers from getting complete control over the keys, preventing them from removing all the funds in the wallets.

Therefore, developers can set how to spend and use the coin through Bitcoin covenants, preventing all illegal activities in the crypto space and providing restricted control to the users.


Bitcoin covenants have been used for years to provide additional security layers to the crypto space. However, the developers aim to make it easier for the new traders to prevent their funds from any scam. Bitcoin covenants have a long way to go, making the crypto industry a reliable and safer place for users and traders.

Author: Isacco Genovesi

Isacco writes news articles, reviews and guides about cryptocurrencies including technical analysis, blockchain events, coin prices marketcap and detailed reviews on crypto exchanges and trading platforms.

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