Even more undermining of property rights is this weird concept of public property. The concept itself is an oxymoron as the word property comes from the Latin word, propria, which means one’s own. “Public” property is owned by everyone, which all too often means that it’s not really owned by anyone, but exploited by those in charge. “Public” property is a honeypot for cronyism and embezzlement. Compounding this is that the property itself in the form of taxes is collected by force. “Greater good” is just a convenient excuse to rob us and plunder the proceeds.
Taking other people’s property by force is theft and theft is what undermines civilization. Public property, in other words, is an easy means of theft.
Bitcoin
The reason why Bitcoin is revolutionary is because it’s property that’s truly owned. It’s very hard to confiscate, unlike other forms of property. The absolute ownership of value that we have in Bitcoin is unprecedented and cause for great hope, particularly as inflation and confiscation proliferate in the fiat world.
Bitcoin’s true self-sovereignty over property and value is also why so many Bitcoiners encourage self-custody and not leaving coins on exchanges. Exchanges are trusted third parties and keeping bitcoin on an exchange essentially puts restrictions on your Bitcoin usage. We know, for instance, that many exchanges refuse to allow coins to be withdrawn to CoinJoins. They can also become insolvent, in which case whatever coins they have will be split among all the customers. All customers essentially have some equity claim in some UTXOs. Not your keys, not your coins is not just a pithy saying, it’s really a statement about true property rights over your Bitcoin.
This is also why altcoins are not different from fiat money. They have a central committee that decides whether some smart contract executions are legitimate or not. Most smart contract executions are considered legitimate. But some smart contract executions are called “hacks” and are censored by miners, confiscated by exchanges, or reverted by developers.
The Poly Network’s $600 million “hack” from several months ago is an excellent example. The nominal amount of $600 million was made non-transferable by the controllers of the Poly Network. The central committee of Poly made sure the coins couldn’t move by contacting miners and exchanges. The “hacker” settled for a mere $500,000, which means that at least from a market perspective, the permission granted by those in charge of the Poly Network was worth more than 99.9% of the nominal amount. All altcoin networks are permissioned because they’re centralized.
The undermining of property rights is one of the consequences of centralization, which altcoins and fiat money clearly have. One way to explain Bitcoin’s uniqueness versus altcoins is that Bitcoin gives true property rights while altcoins and fiat money only give the illusion of property rights. In reality, altcoins and fiat money are confiscatable by the people in charge. Much like in “The Wizard of Oz,” the illusion is powerful and deceives many.
Covenants
Which brings us to the topic of covenants. For those that are unfamiliar, covenants are a way to restrict the usage of Bitcoin in some way. For example, a typical covenant might say the equivalent of “you can spend this UTXO to one of these three addresses, but not any other.” In a sense, we already have very limited covenants, like timelocks on Bitcoin, which say the equivalent of “you cannot spend this UTXO until this time.” You can think of covenants as being conditional, where the benefits of the money are limited to the conditions laid out by the payer. They undermine property rights to that money.
This isn’t always a bad thing. Covenants are useful for security, especially against some form of the $5 wrench attack. If you choose to restrict your own property so it’s harder for people to steal, that’s a perfectly fine use case. For example, restricting the UTXO you own to only be allowed to be sent to a multisig address after a year might be a good security strategy.
What concerns me about covenants is that they can be used to fuzz property boundaries and undermine what makes Bitcoin so great. Any restriction on property ultimately undermines the property rights of the recipient. Could a government use this to undermine bitcoin bought on exchanges? Could there then be two sets of Bitcoin, one permissioned by the government and one black market?
BIP119
Which brings us to the current controversy in Bitcoin, OP_CTV or BIP119. This is the proposal by Jeremy Rubin to add a new OP code which will enable covenants. There’s much to be said about the activation parameters, competing covenant proposals and even who should have a veto, but that’s not my concern here. The technical merits are a whole separate discussion. The more important consideration for me, as a user, is the potential for undermining my property rights.
For developers, the potential cool stuff they could build is the big consideration and covenants definitely let developers build really cool stuff. For instance, there’s something called coinpools, which let each UTXO be collectively owned by many people. This would make Bitcoin massively scalable as a single UTXO could potentially have millions of users owning a piece of it and each user could exit from the UTXO for the amount they own to another UTXO trustlessly.
Yet for users, we have to ask the more practical questions of whether this is actually good for the money we already have. Could covenants be used for evil purposes where it would make it easier for governments to enforce a sort of on-chain KYC? If so, what would that look like and how likely is it? What are our mitigations against such an attack and how difficult would it be to resist? Will fuzzing of property rights through a covenant OP code result in centralization?
Trade-Offs
Just because we can do something doesn’t mean we should . What’s alarming to me about the covenants proposal is that I keep hearing claims that there’s “wide developer agreement” that covenants are desirable. Perhaps to developers, they are. But what about the users? Ultimately, it’s the users that have control because they run the nodes.
The conversation that really needs to take place is whether the benefits outweigh the potential risks. What I’ve been hearing for the past three years are all the ways in which covenants will make Bitcoin better. But what I haven’t heard too much about is in what ways covenants can be used to undermine what I believe to be the most important property: our ability to truly own Bitcoin and not be subject to censorship or confiscation.
This is a guest post by Jimmy Song. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.