Backed by prominent Bitcoin developers and firms, the long-dormant Bitcoin Improvement Proposal OP_CHECKTEMPLATEVERIFY, known as CTV or BIP-119, is now gathering steam.
If finally approved, it could boost Bitcoin’s scalability, security and usability — particularly through the introduction of covenants and vaults that could improve self-custody and enable safer, smarter layer-2 applications such as Lightning and Ark.
Bitcoin protocol upgrades are few and far between. They typically require years to activate thanks to Bitcoin’s decentralized governance structure. The last was Taproot in 2021.
But BIP-119, proposed by Jeremy Rubin in 2019, is getting closer. In fact, some developers believe it could find consensus by the end of the year.
BIP-119: An open letter to BTC’s tech community
On June 9, a group of 66 Bitcoin application and protocol developers signed an open letter to the technical Bitcoin community urging adoption of BIP-119, as well as another proposal (CSFS, BIP-348). The signatories noted the “significant benefits that these changes would bring to end-users of bitcoin,” including boosts to Bitcoin layer-1 security and Bitcoin layer-2 scaling solutions.
Among the signatories were influential developers such as Jameson Lopp and Andrew Poelstra, as well as developers from Bitcoin-focused firms like Anchorage, Luxor Mining and Alpen Labs.
“Significant progress is being made towards such consensus,” Steven Roose, CEO of Second, told Cointelegraph this week while cautioning that activation isn’t yet a done deal.
Still, Roose said approval could happen by the end of the year.
If so, would that be an important development for the Bitcoin community? Roose answered:
“I believe it would be a big deal for Bitcoin, certainly in the near-term. This protocol upgrade would enable implementation of Eltoo-style channels — also called Lightning Symmetry — which makes Lightning channels more practical and safer for end users.”
“Any Bitcoin upgrades, including BIP-119, are going to be significant because of how distributed the network’s consensus rules have become,” Daniel Gray, senior research analyst at Fidelity Digital Assets, told Cointelegraph.
One of the most exciting aspects of BIP-119 is the introduction of covenants and, through that, vaults, continued Gray. Users today have many options when it comes to securing their Bitcoin (BTC), “but vaults add an additional level that could potentially bring more comfort to self-custody users, as well as more security options with other custody solutions.”
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According to the developers’ letter, the upgrade would allow better scaling solutions, vaults and congestion control, as well as enable discreet log contracts, where two or more parties agree to exchange money depending on the outcome of a certain event, which would offer more privacy for some Bitcoin transactions.
Galaxy Digital’s Alex Thorn wrote in a June 13 blog that BIP-119, were it activated, would “greatly enhance the ability to build better, safer methods of custody, create new forms of layer-2 bridges, and much more.” It could serve to integrate Bitcoin with platforms that execute smart contracts on the Ethereum blockchain, like Avalanche, Polygon, Arbitrum and others.
Why do soft forks take so long?
Bitcoin draws security from its decentralized structure, but it also makes important changes, sometimes called soft forks, very difficult. The network has no board of directors to ratify decisions. It operates in an open-source manner, and for that reason, a meaningful change often requires years of painstaking consensus-building.
This isn’t all bad. The cryptocurrency is designed to be a long-term store of value, and so it should be resistant to short-term pressures and incentives, continued Thorn, “but that doesn’t mean Bitcoin should never be upgraded.”
The last upgrade, Taproot, activated in November 2021, led to some unforeseen use cases (e.g., ordinals’ controversy), and that, too, could be making more developers hesitant this time around. According to Gray:
“The discussions happening around OP_CTV showcase the complexity behind implementing any upgrade for Bitcoin on both a technical and social level.”
What are covenants?
It’s difficult to determine the unexpected secondary effects that an upgrade like BIP-119 could bring, but it could draw in new users and innovative businesses, according to Gray. The introduction of covenants and, through those, vaults, which are cold storage repositories for long-term BTC holdings, are particularly interesting.
“Smart vaults” could allow a user to determine beforehand how much BTC could be moved within a given time frame and where it should be sent. For example, a user could determine that no more than 0.1 BTC can flow out of their vault and into their hot wallet per week, as explained in a recent blog.
This setup, where a user restricts where…
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