Ethereums creator, Vitalik Buterin, envisioned the cryptocurrency and blockchain as an extension of Bitcoin. Therefore, Ethereum is more than a store of value; it is a peer-to-peer network that supports the expansion of its blockchain ecosystem, where users develop their own Dapps, DAOs, and NFTs.

The smart contract function gives a prominent feature of Ethereum, a revolutionary technology enhancing collaborations in online environments. The process makes asset exchanges more efficient by automating transactions based on predetermined terms and conditions. Once the two parties complete their roles, the smart contract is executed and cannot be reversed or altered.

However, Ethereum smart contracts pose several security challenges, considering front-running attacks and logical errors are common. Besides, attackers take advantage of timestamps and manipulate them.

Thats why Ethereums competitors developed their unique smart contracts functions to mitigate these challenges. But are they really that efficient and safe?

Besides the security issue, smart contracts on Ethereum are praised for their numerous advantages for users. Theyre cost-efficient, based on decentralization and automated. Therefore, they can provide conditional payments and programmable money through the use of a flexible language that supports multiple computational instructions.

Hence, Ethereum smart contracts can be used in industries like decentralized finance, supply chain management, real estate and even healthcare. Still, institutions might choose smart contracts offered by competitors.

Solana is a Web3 infrastructure system launched later than Ethereum in 2022, so its not as popular. However, its considered by many as a better alternative to Ethereum due to its low cost and fast transaction processing.

Solanas smart contracts support building decentralized applications more efficiently and leverage a superior consensus mechanism. The Proof of History technology ensures security is prioritized during transaction processing, which is a plus compared to Ethereum. Moreover, Solanas smart contract tools, such as Solana CLI and Serum DEX, enhance the blockchains development.

Cardano was released in 2017 and it provides better scalability compared to Ethereum due to its layered architecture. Cardanos blockchain is a productive environment for smart contract development, as it was designed through unique methods on a research-driven approach, making it stable and secure.

One of the best things about Cardano is its energy efficiency features that ensure low gas fees and high transaction speeds. Hence, Cardano is great for creating smart contracts because its native language is designed to allow versatility among multiple industries, supporting the growing demand for the blockchain to be used for smart contracts.

Ethereums smart contract function is based on the Turing system that includes the Solidity programming language and the EVM (Ethereum Virtual Machine). While most blockchains work similarly, Stellar is different.

The blockchain uses numerous programming languages, such as Python or PHP, through which transactions are executed with constraints. Smart contracts are powered by a multi-signature feature that the two parties have to sign, while Atomicity technology combines multiple operations in a single transaction. Hence, if one operation fails to complete, the other smart contracts will be triggered anyway.

The distributed ledger technology can be leveraged for smart contracts through the Docker container, a system that defines application services. It may be more challenging to run smart contracts on the Hyperledger Fabric network because the technology is more complex.

However, its an intricate project because it supports smart contracts while running on top of the operating system. At the same time, it enhances high-level programming features through the Turing complete system and uses the key-value pair data model. The blockchain network is private, so it requires approval from certificate authorities (CA).

Considering the multiple competitors to Ethereum, were wondering if the technology behind it will ever evolve. The main problem of Ethereum is the rising costs and lack of scalability, so new blockchains can always appear and deliver better services.

Still, Ethereum has a great potential of becoming the best blockchain and smart contract support. Using Solidity, smart contract gas costs can become efficient through the following functions:

Caching storage in memory to avoid storage loads;

Using calldata to enhance runtime execution;

Making some variables immutable to avoid storage-writing operations;

Leveraging private constants instead of public;

At the same time, smart contracts can be upgraded to fix vulnerabilities and add new features. However, improvement may add a new level of complexity that can increase flaws in the system. Moreover, centralization risks may appear due to individuals performing unauthorized updates, which is why users must trust developers in this process.

Recently, Ethereums team provided a development roadmap for the blockchain that would solve its prominent issues. There are currently six stages of improvement, starting with the Merge, which has already been deployed, and ending with the Splurge, which will handle minor fixtures. In between the two, Ethereum plans to increase the number of transactions per second, mitigate risks and make block verification more efficient.

Among these updates, an additional set of EIPs, or Ethereum Improvement Proposals, will contribute to reduced end-user costs, efficient networks, and handling of complex operations. Still, a primary interest is given to improving smart contract execution. For instance, the EIP-5656 operation will deal with copying data in memory that will optimize smart contracts. At the same time, the EIP-6780 will allow smart contracts to be deleted automatically from the blockchain to free up storage space. EIP-1153 will ensure smart contracts are more flexible and gas will be consumed more efficiently. Therefore, the upcoming years will constitute a better and stronger smart contract function for Ethereum.

Ethereum is mainly known for a diverse blockchain, where Dapps, DAOs and NFTs emerged and increased in popularity. But none of these features would see light without the smart contract technology, which enhances automatization and fairness in the exchange between two parties. The technology is revolutionizing and is already introduced in real-life use cases in industries like healthcare and finance.

Continue reading here:

Are Ethereums smart contracts better than its competitors? - Tucson Weekly

Smart contracts, the self-executing agreements with the terms of the contract directly written into code, are revolutionising various industries by automating processes and reducing the need for intermediaries. These digital contracts, primarily built on the Ethereum blockchain, offer the promise of increased efficiency and transparency.

The integration of advanced automation tools into smart contracts is one of the most significant recent advancements. The Ava Protocols mainnet launch on Ethereum exemplifies this trend, enabling developers to incorporate enhanced transaction automation, privacy, and cost-efficiency into their decentralised applications (DApps).

This protocols ability to trigger autonomous super-transactions based on predefined conditions simplifies complex on-chain operations and reduces friction for both developers and end-users.

Moreover, the use cases for smart contracts continue to expand. Initially popular in finance for automating transactions, they are now being used in industries such as real estate, supply chain management, and even intellectual property. For instance, platforms like RealT and Propy facilitate fractional ownership of real estate, allowing investors to buy shares in properties without large capital outlays. Similarly, Maecenas and Masterworks have made it easier for investors to own shares in valuable artworks.

Experts in the field emphasise both the potential and the challenges associated with smart contracts. Chris Li, founder of Ava Protocol, highlights the efficiency and transparency brought about by automated smart contracts, which can streamline processes like dividend distributions and voting rights without manual intervention. However, he also points out the need for secure and resilient foundations to support these innovations.

From a technological perspective, smart contracts are highly dependent on the precision of their code and the security of the blockchain infrastructure. As Oded Vanunu, Chief Technologist at Check Point Software Technologies, notes, even minor flaws in smart contracts can lead to significant vulnerabilities, such as unauthorised access and fund misappropriation. To address these risks, it is essential to adopt a multi-faceted approach that includes formal verification tools, comprehensive auditing processes, and advanced encryption techniques.

Looking ahead, the expansion of tokenization into new asset classes and the evolution of regulatory frameworks are expected to shape the future of smart contracts. Tokenization can unlock value in assets like intellectual property and carbon credits, creating new investment opportunities.

Additionally, as regulators around the world begin to recognise the benefits of smart contracts, the development of clear and comprehensive regulatory frameworks will help reduce legal uncertainties and encourage greater adoption.

However, challenges remain. Scalability issues, security concerns, and the need for integration with traditional financial systems are key considerations for the future. The transition to Ethereum 2.0 aims to improve scalability and security, addressing some of these challenges. Ensuring seamless integration between smart contracts and existing financial infrastructure will also be crucial for their widespread adoption.

While smart contracts can revolutionize various industries, their success will depend on addressing technological, legal, and economic challenges. As advancements continue, the adoption of smart contracts is likely to grow, unlocking new opportunities for innovation and efficiency.

Here is the original post:

Smart contract evolution and its technological impact - CoinJournal

A Flipside Crypto report shows that over 637 million Ethereum Virtual Machine (EVM) smart contracts have been deployed across seven layer-2 blockchains since January 2022.

EVM-compatible smart contracts refer to software that the computing state of the Ethereum blockchain can understand.

With scaling solutions becoming more efficient and accessible, fewer EVM contracts are directly deployed on the Ethereum blockchain. With the Dencun update around the corner which will introduce blob transactions and other infrastructure upgrades this trend is likely to accelerate.

With layer-2s able to only publish critical data to ETH layer-1, the costs for interacting with layer-2s should significantly decrease. This enables much more creativity in protocol development, a much easier experience for users to have complex transactions abstracted away from them and ultimately lowers the costs for layer-2s to interoperate with each other, Carlos Mercado, a data scientist at Flipside Crypto told Blockworks.

Read more: Ethereum devs debate future of account abstraction

Leading this movement today is Optimism, an Ethereum optimistic rollup layer-2, which currently stands out as the most popular blockchain for deployments, accounting for over two-thirds (~70%) of the total EVM smart contract deployments so far this year. According to Flipside Crypto, the chain has seen over 28.8 million EVM deployments since Jan.1.

However, for non-EVM smart contracts, Polygon and BNB smart chains (BSC) remain the most popular deployment chains. On Sept. 6 of last year, BSC saw 5.3 million contracts deployed, the most deployments seen on a chain ever, though this number quickly trailed off around Sept. 13.

DeFi smart contracts have been the most popular for developers across all chains this year, accounting for roughly 34.7% of all deployments that can be categorized. This number is roughly 11.2% higher than in 2022 and 2023.

By contracts, NFT smart contracts, which drove the bull market between 2021 and 2022, have become less popular over time. Deployments decreased from 18.6% to 8.2% in the same period.

Read more: Stellar sparks smart contract upgrade and its not an EVM

Mercado notes that this can be interpreted as both positive and negative.

The positive argument is that the space is finding product market fit, theres more tokens than ever and new primitives that enable lending, borrowing, options, perpetuals, oracles for more assets than ever, Mercado said.

He adds, the somewhat negative argument is that given more money [is] flowing to more blockspace, fragmentation of liquidity is forcing more (arguably unproductive) activity: bridging and swapping for arbitrage as opposed to individuals specific desire to be on a chain or have a token.

Mercado acknowledges both sides of the argument but notes his bias towards the space evolving faster than it is fragmenting.

Read more: zkLinks Nexus wants to solve liquidity fragmentation between ZK ecosystems

Uncategorized smart contracts, or those classified as other by Flipside Crypto, are by far the most commonly deployed smart contracts. They make up 93.8% of all smart contracts deployed across the observed chains.

This number is significantly higher than it was in 2022, where these smart contracts made up an estimated 37% of deployed contracts. Its also a little higher than in 2023, where these smart contracts made up around 86% of all deployments.

While it is difficult to draw clear conclusions from this wide-ranging category, this figure, coupled with the growing proportion of dapps across all chains, suggests more experimentation and diversification at the protocol level, Flipside Crypto wrote.

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More here:

Two-thirds of EVM smart contract deployments in 2024 are from Optimism: Report - Blockworks

Firewall secures funding from North Island Ventures, Breyer Capital, and Hack VC to bulletproof smart contract networks.

San Francisco, USA / California, 7 March, Chainwire Firewall, a blockchain infrastructure startup, announced its $3.7M pre-seed round, co-led by North Island Ventures, Breyer Capital, and Hack VC. Firewall transforms the usability of smart contract technology through an innovative finality consensus mechanism that eliminates smart contract exploits.

The founders of Firewall, previously the first and sixth employees at Staked a staking company acquired by Kraken in a landmark crypto deal have helped breathe life into the eras of proof-of-stake and decentralized finance over the last six years. In that time, the founders served institutional clients with infrastructure that handled billions of dollars, and now building on their experience, are addressing what most perceive as the final major hurdle to a full embrace of digital assets by the traditional financial system.

Firewall is building the safety rails that enable the everyday person to use the next era of the Internet, stated Devan Purhar, Co-Founder of Firewall. Today, billions of dollars are stolen from users, through irreversible transactions that are classifiable as theft. Theres a parallel between the current state of crypto-networks and the early internet, with a similar lack of essential security infrastructure. Our focus is not on marginal improvements; rather, we bring a required paradigm shift in the usability of blockchains. We designed a solution from first principles, and created programmable finality. Fundamentally, we make exploits a concept of the past.

Akin to a digital version of a traditional networks firewall, Firewalls technology introduces "programmable finality. It extends rollups to use programmable transaction finalization rules, which act as automated checkpoints that block harmful transactions, inserted before later stages when the data is finalized by a DA layer such as EigenDA or Celestia. The founders envision Firewall as a part of every smart contract network, acting as an embedded security system that intelligently guards against threats.

"Firewall uses real-time algorithms to pre-filter exploits from being included in blocks," shared Sam Mitchell, Firewall Co-Founder. "Then, by using programmable finality we automatically recover from any exploits that bypass the pre-filter checks. Detection at this stage can involve AI models or social consensus, which may take longer. Mitchell emphasized that institutions, managing trillions in assets, are interested in the benefits of smart contracts but require a secure environment to deploy capital. Creating comfort for institutional clients to use smart contracts will be the pivotal point for the widespread adoption of digital assets.

Past the founders, the core team is credited with successfully pioneering AI use in crypto threat detection at OpenZeppelin and Forta, and is set to revolutionize the field with Firewall's all-encompassing security approach. The startups initial focus is on the rollup ecosystem, and prides itself on alignment with building non-custodial and trustless solutions. The funding will help expand the team and create the community to firewall the EVM. Longer-term plans include developing coordination mechanisms to integrate the social layer directly into the Firewall.

Travis Scher, Managing Partner at North Island Ventures, said:

We believe the primary impediment to cryptos mainstream adoption is the current security paradigm, in which a single bug can lead to a total loss of user funds. Firewall's solution can prevent such losses, and we are thrilled to support such an important company from the outset.

The funding round was co-led by North Island Ventures, Breyer Capital, and Hack VC, with participation from Finality Capital, and angels including Tim Ogilvie of Staked, Kain Warwick and Jordan Momtazi of Synthetix, Nathan McCauley of Anchorage, and Yaoqi Jia of AltLayer.

Firewall is making blockchains safer for users, developers, and institutions, said Ted Breyer of Breyer Capital. We see this catalyzing a new era of smart contract utility, and were delighted to support the team.

With the growing global adoption of crypto and regulatory spotlight, catalyzed by the BTC ETF and anticipated ETH ETF, the time for crypto-networks to become bulletproof is now. Trillions of dollars remain on the sidelines, scared to use smart contracts. Firewall's programmable finality which effectively neutralizes exploits, offers the security assurance needed to unlock these assets, paving the way for crypto to revolutionize the global financial system.

Firewall is dedicated to making smart contract technology safe to use in everyday life, by eliminating smart contract exploits. Their solution is akin to a robust network firewall, applied to the modular blockchain ecosystem.

Co-Founder

Devan Purhar

Firewall

devan@usefirewall.com

This publication is provided by the client. Cointelegraph does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products, or other materials on this page. Readers should do their own research before taking any actions related to the company. Cointelegraph is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods, or services mentioned in the press release.

Originally posted here:

Firewall raises $3.7M to take smart contracts mainstream with programmable finality - Cointelegraph

With most smart contracts no longer deployed on Ethereum, analysts expect the Dencun upgrade to further boost this trend as layer-2 solutions improve.

Ethereum is quickly losing its status as the top hub for deploying smart contracts amid growing competition among layer-2 networks (l2), analysts at Flipside revealed in a recent research report. According to their data, nearly 640 million smart contracts have been deployed since January 2022, with Polygon and BNB Chain (formerly Binance Smart Chain) leading in contract deployments.

Moreover, Flipside says Optimism, a layer-2 solution which operates on top of Ethereums architecture, has accounted for two thirds of total EVM smart contract deployments so far in 2024.

As the majority of EVM contracts are no longer deployed directly on Ethereum, we expect the forthcoming Dencun upgrade to further accelerate this trend as L2 solutions become more accessible and efficient.

Flipside

Analysts noted that contract deployers have also surged, making up 34.7% of categorizable deployers across observed chains since Jan 1, marking a significant increase from 11.2% in both 2022 and 2023. However, Flipside pointed out that it isnt just developers that can deploy contracts, adding that smart contracts can also deploy contracts.

For instance, Factories like UniswapV2Factory allow anyone to create liquidity pools for their tokens permissionlessly. This tends to lead to deployments consolidating around deployers like these.

Flipside

In the meantime, deployers related to non-fungible tokens (NFTs) saw a decline from 18.6% to 8.2% over the same period, analysts said, suggesting that the next bull run might prioritize decentralized finance over NFTs, which dominated the previous cycle.

In January, Michael Novogratzs crypto bank Galaxy Digital said in a research report that 2024 will be a crucial year for Ethereum, as other layer-1 blockchains such asSolana will likely raise the stakes.

Galaxy Digital analysts note that Ethereums modular architecture, particularly various rollup types, will introduce new challenges and technological risks due to their early stage of development. Singling out Solana as the most distinctive general-purpose blockchain embracing a monolithic architecture, they position it as the primary competitor against Ethereum.

Read the original post:

Dencun upgrade to further reduce Ethereum's dominance and accelerate layer-2 solutions, Flipside says - crypto.news

Ethereum is emerging as the vanguard for a revolutionary financial system. Advocates of the second most valuable blockchain extol the virtues of smart contracts, envisioning a future marked by market transparency, tokenized funds, and expeditious settlement times.

At the time of writing, Ether was trading at $3,780, up 2% and 8% in the daily and weekly timeframes, data from Coingecko shows.

Ethereums Untapped Institutional Potential

Experts argue that Ethereum is yet to undergo its institutionalized hype cycle, lagging behind the fervor witnessed by Bitcoin.

Robby Greenfield, the visionary co-founder and CEO of Umoja Labs, foresees a significant uptick in institutional interest in Ethereum, particularly fueled by the impending Bitcoin halving and the cascading inflows from Bitcoin ETFs.

Greenfields bold prediction places Ethereum on a trajectory to narrow the gap with Bitcoins gains, asserting that the cryptocurrency could surpass the $10,000 milestone this year.

Institutional investors, he believes, will play a pivotal role in propelling Ethereum to new heights, bringing about a surge in buying pressure.

Regulatory Crossroads: The SECs Stance On Ethereum ETFs

While optimism runs high, the path to Ethereums ascendancy is not without regulatory hurdles.

The US Securities and Exchange Commission, led by Chair Gary Gensler, may adopt a cautious approach toward approving an Ethereum ETF, unlike the relatively smoother approval process witnessed with Bitcoin ETFs.

Genslers hesitance stems from a history where the SEC reluctantly gave the nod to Bitcoin ETFs after a legal battle with Grayscale.

The SEC is set to scrutinize Ethereum ETF applications, including those from financial giants BlackRock and Fidelity, in May.

Despite industry expectations, the approval odds vary, with Polymarket estimating a 43% likelihood and JPMorgan offering a more optimistic 50% chance.Ethereums Catalyst: The Dencun Upgrade

JPMorgan highlights a potential catalyst for Ethereums growththe Dencun upgrade. Crafted to enhance scalability by reducing costs for various rollup solutions, this upgrade facilitates the batching of crypto transactions into smaller data chunks settled on the Ethereum network.

Unlike Bitcoins programmed scarcity with a capped token supply of 21 million, Ethereums supply remains infinite, presenting a unique dynamic in the crypto landscape.

Eugene Cheung, Bybits head of institutions, underscores the positive implications of the Dencun upgrade for Ethereum supporters.

With layer 2 solutions built on top of Ethereum, the blockchain is evolving into a settlement layer for a novel digital infrastructure spanning gaming, trading, and investing.

In the eyes of some, the looming decision on Ethereum ETFs is just the opening act.

Bloomberg ETF analyst Eric Balchunas dismisses an Ethereum ETF as small potatoes, characterizing it as an underwhelming prelude to more substantial developments within the crypto sphere.

Featured image from Pexels, chart from TradingView

View original post here:

Ethereum Aims For $10000, Driven By 2 Key Factors, According To Experts - TradingView

Beijing Dacheng Law Offices, LLP ("") is an independent law firm, and not a member or affiliate of Dentons. is a partnership law firm organized under the laws of the Peoples Republic of China, and is Dentons' Preferred Law Firm in China, with offices in more than 40 locations throughout China. Dentons Group (a Swiss Verein) ("Dentons") is a separate international law firm with members and affiliates in more than 160 locations around the world, including Hong Kong SAR, China. For more information, please see dacheng.com/legal-notices or dentons.com/legal-notices.

See the article here:

Smart contracts in esports: revolutionising the game - Dentons

March 7, 2024 San Francisco, California

Firewall, blockchain infrastructure startup, announced its $3.7 million pre-seed round, co-led by North Island Ventures, Breyer Capital and Hack VC.

Firewall transforms the usability of smart contract technology through an innovative finality consensus mechanism that eliminates smart contract exploits.

The founders of Firewall, previously the first and sixth employees at Staked a staking company acquired by Kraken in a landmark crypto deal have helped breathe life into the eras of PoS (proof-of-stake) and DeFi (decentralized finance) over the last six years.

In that time, the founders served institutional clients with infrastructure that handled billions of dollars, and now building on their experience, are addressing what most perceive as the final major hurdle to a full embrace of digital assets by the traditional financial system.

Devan Purhar, co-founder of Firewall, said,

Firewall is building the safety rails that enable the everyday person to use the next era of the internet. Today, billions of dollars are stolen from users, through irreversible transactions that are classifiable as theft.

Theres a parallel between the current state of crypto networks and the early internet, with a similar lack of essential security infrastructure.

Our focus is not on marginal improvements rather, we bring a required paradigm shift in the usability of blockchains. We designed a solution from first principles and created programmable finality. Fundamentally, we make exploits a concept of the past.

Akin to a digital version of a traditional networks firewall, Firewalls technology introduces programmable finality.

It extends rollups to use programmable transaction finalization rules which act as automated checkpoints that block harmful transactions inserted before later stages when the data is finalized by a DA layer such as EigenDA or Celestia.

The founders envision Firewall as a part of every smart contract network, acting as an embedded security system that intelligently guards against threats.

Sam Mitchell, co-founder of Firewall, said,

Firewall uses real-time algorithms to pre-filter exploits from being included in blocks. Then, by using programmable finality we automatically recover from any exploits that bypass the pre-filter checks. Detection at this stage can involve AI models or social consensus, which may take longer.

Mitchell emphasized that institutions managing trillions in assets are interested in the benefits of smart contracts but require a secure environment to deploy capital.

Mitchell added,

Creating comfort for institutional clients to use smart contracts will be the pivotal point for the widespread adoption of digital assets.

Past the founders, the core team is credited with successfully pioneering AI use in crypto threat detection at OpenZeppelin and Forta and is set to revolutionize the field with Firewalls all-encompassing security approach.

The startups initial focus is on the rollup ecosystem and prides itself on alignment with building non-custodial and trustless solutions.

The funding will help expand the team and create the community to firewall the EVM.

Longer-term plans include developing coordination mechanisms to integrate the social layer directly into the Firewall.

Travis Scher, managing partner at North Island Ventures, said,

We believe the primary impediment to cryptos mainstream adoption is the current security paradigm in which a single bug can lead to a total loss of user funds. Firewalls solution can prevent such losses, and we are thrilled to support such an important company from the outset.

The funding round was co-led by North Island Ventures, Breyer Capital and Hack VC, with participation from Finality Capital and angels including Tim Ogilvie of Staked, Kain Warwick and Jordan Momtazi of Synthetix, Nathan McCauley of Anchorage and Yaoqi Jia of AltLayer.

Ted Breyer of Breyer Capital said,

Firewall is making blockchains safer for users, developers and institutions. We see this catalyzing a new era of smart contract utility, and were delighted to support the team.

With the growing global adoption of crypto and regulatory spotlight, catalyzed by the BTC ETF and anticipated ETH ETF, the time for crypto networks to become bulletproof is now.

Trillions of dollars remain on the sidelines, scared to use smart contracts.

Firewalls programmable finality, which effectively neutralizes exploits, offers the security assurance needed to unlock these assets, paving the way for crypto to revolutionize the global financial system.

Firewall is dedicated to making smart contract technology safe to use in everyday life by eliminating smart contract exploits.

Their solution is akin to a robust network firewall, applied to the modular blockchain ecosystem.

Devan Purhar, co-founder of Firewall

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Read the original post:

Firewall Raises $3.7 Million To Take Smart Contracts Mainstream With Programmable Finality - The Daily Hodl

Coindar

Tezos will host an AMA on X on March 12th at 5:00 PM UTC. The discussion will focus on the topic of adaptive issuance.

Refer to the official tweet by XTZ:

XTZ Info

Tezos is a distinctive blockchain platform architected to facilitate and govern decentralized applications (dApps) and smart contracts. Its foundation is built on a decentralized governance system that enables blockchain modifications through a community-led decision-making process.

Operating on a unique iteration of Proof of Stake (PoS) mechanism known as Liquid Proof of Stake (LPoS), Tezos allows participants owning more than 6,000 Tez (XTZ) to become delegates, or bakers. These bakers are responsible for creating, signing, and publishing new blocks on the Tezos blockchain, and endorsing blocks produced by other bakers. Furthermore, the network utilizes the Michelson programming language for the creation of smart contracts, which engage with the networks cryptocurrency, Tez, for transaction execution and gas payment.

The native token of Tezos, XTZ, or Tez, plays a multifaceted role within the ecosystem. It serves as a reward for participation in the creation and endorsement of new blocks, either directly or through delegation. It functions as a voting mechanism within the decentralized governance system. Additionally, it is a means of value transfer and is used to pay for gas, the unit of computational effort in Tezos, necessary for executing transactions and interacting with smart contracts.

Read this article:

Tezos to Hold AMA on X on March 12th - TradingView

Have you fallen into the rabbit hole of covenants?

Interviewer: Hua, freelance writer, independent researcher. X: @AmelieHua

Interviewee: Poly, a Controls Specialist, maintains multiple Distributed Control Systems (DCS's) and has worked with other five nine systems (99.999% uptime availability). X: @Polyd_

Covenants are an old yet fresh topic. As early as 2013, developers began discussing this topic, and in recent years, multiple BIPs aimed at implementing covenants have been proposed, sparking intense debates and making it one of the hottest topics.

Covenants warrant serious discussion due to their powerful capabilities. They are considered to bring new possibilities to the programmability of Bitcoin and are believed to enable smart contracts. For Bitcoin, this is undoubtedly a double-edged sword. In this article, we will explore what covenants are, how they work, their robust functionality, and their significance for Bitcoin. While discussing details, this article often uses CTV as an example, but CTV is not the only method of implementing covenants.

This article delves into the exploration of covenants but also magnifies a slice of Bitcoin under a microscope for observation. Through this observation, we can understand how Bitcoin operates at a granular level, comprehending both its capabilities and limitations. Understanding what it cannot do is as crucial as understanding what it can do because only then can we choose the right path for building on Bitcoin.

Hua:

Before discussing covenants, clarifying two issues related to Bitcoin may be necessary, which can help us better understand covenants.

We know that Bitcoin uses a scripting language, and it is known that scripting languages support the implementation of smart contracts. However, in reality, smart contracts have not been implemented on the Bitcoin main chain. This inevitably creates a sense that implementing smart contracts on Bitcoin faces some insurmountable obstacles, and it seems impossible on the Bitcoin network.

However, many people may not be aware that although Bitcoin can be programmed using a scripting language, the set of opcodes is extremely limited. This limited set of opcodes restricts the programmability scope of Bitcoin, meaning that, although the scripting language can implement smart contracts, programmers do not have sufficient "tools" to implement smart contracts.

Poly:

Definitely, Bitcoin Script can be considered limiting as it can only perform the basic operations such as making simple payments. Some of the reasons that people may find it limiting is that it doesnt have a global state, its not considered turing complete, it uses a UTXO-based system (which has value blindness) instead of an account-based system. The last big reason is that very little data from the blockchain itself can be integrated into contracts causing blockchain-blindness.

This has created a lot of challenges over the years as people have worked around these limitations. Weve also had a semantic shift with the term smart contract to mean one specific thing when you should consider the lightning network a production of many smart contracts formed by many individuals. Those multi-sigs with hashlocks and timelocks are not only smart contracts, but also have time-based covenants.

The problem is, just as you mentioned before, because Bitcoin only has simple opcodes to perform just the basics, if you attempt to scale beyond two people in a smart contract, you can get either a lot of bloat for an on-chain footprint or the things you want to do just might not be possible. This strict limitation comes from a few places, I think the biggest being that when the inflation bug occurred back in 2010, Satoshi had disabled a whole list of higher order opcodes including OP_CAT which wouldve allowed us to create more dynamic smart contracts via transaction introspection.

BCH has since overcome this limitation within their own script, showing that Script isnt as weak as everyone assumes, just that Bitcoin has always been slower due to its decentralization and coordination is near impossible except over long periods of time. Weve also barely touched on Taproot and Tapscript which will alleviate a lot of the footprint concerns and allows for new behaviors such as BitVM by rolling up the contract into the signature and you only reveal as necessary.

Hua:

Why are there strict limitations on opcodes? Can you use OP_CAT as an example to help us understand this point?

Poly:

So OP_CAT is deceptively simple, it will take two strings and add them together. It was originally disabled because it had resource issues and could be used to cause nodes to crash, but Im not sure if thats the full story as Satoshi set the 520 byte stack limit and disabled OP_CAT in the same commit so there could be more to it than just simple resource exhaustion.

But just to give a short list of what OP_CAT can perform: CTV/TXHASH covenants, verify SPV proofs, double-spend protection for 0-conf TXs, 64-bit arithmetic, vaults, quantum-resistant signatures. The list goes on, with OP_CAT alone, it can emulate both CTV[CheckTemplateVerify] and TXHASH style transactions. The only issue is its highly inefficient in the manner that it performs these actions that might be possible, but that could just preclude these transactions from being desirable except by users of scale such as custodians.

Hua:

Let's talk about another "limitation" of Bitcoin. Bitcoin only supports "verification" as a form of computation and can't do general-purpose computation.

We also know that, for example, smart contracts on Ethereum contain rules for state transitions. It completes the state transition through computation, enabling the functionality of smart contracts. In comparison, Bitcoin can't do general-purpose computation, meaning it cannot achieve state transitions through computation on its own.

Is my understanding correct?

Poly:

Yeah, Id agree thats a simple summary of the current state of things. Bitcoin could be made to support computational transactions and the line can become quite thin when covenants and state transitions are involved, but those proposals arent as well researched and might not be something thats considered desirable.

Im actually not that much of a fan of the way Ethereum does things. Due to it being computational in nature with the verification built on-top, if I attempt to perform a trade, my window could shift and I could fail to trade but the transaction for the attempt to trade was still valid so i still paid for fees which wasted my money on what id want to consider a failed transaction and wasted blockspace for someone else. Another weird aspect are the Oracles in Ethereum. Oracles must pay gas to update their oracle prices whereas in Bitcoin DLCs, the Oracle are blinded and are just providing a signature and cant be pinned due to a change in fees nor can Oracles target specific contracts.

Earlier I discussed all the downsides to the UTXO model compared to the account model and global state model, but what allows the UTXO model to shine is parallelism. The only concern you have is the child transactions to the same UTXO, nothing else matters, this allows the system to scale much better.

Hua:

Let's start discussing covenants now. What are covenants?

Poly:

Covenants usually refer to restrictions on how coins can be transferred. The word covenant seems to carry some sort of connotation with it so it helps to demystify it and explain it as simple locking mechanisms you can place only on your *own* coin.

We have two covenants already inside Bitcoin and they power the Lightning Network, CSV [CheckSequenceVerify] and CLTV [CheckLockTemplateVerify]. Some just call these opcodes smart contract primitives as theyre simple time locks, but they can also be classified as time covenants.

CTV [CheckTemplateVerify] is a proposed Bitcoin upgrade and is included in BIP 119. It is different from CSV and CLTV, you can think of CTV as a TXID [Transaction ID] lock or UTXO lock, only these TXIDs can be made from this lock. For CTV, we refer to this TXID lock as Equality Covenants as the resulting transactions must equal to the original transactions that were committed. Its also called a deferred commitment covenant, as you can see that your UTXO has been committed to, but it isnt yet placed on-chain.

The most known alternative is SH_APO [Any Previous Out or AnyPrevOut] which focuses on the payout commitment being ensured while allowing the pay-in method to be flexible. A few others discussed are OP_CCV [also known as MATT], OP_EXPIRE, TXHASH and TEMPLATE KEY.

Hua:

When you mention "covenants usually refer to restrictions on how coins can be transferred," can I understand it like this: Covenants are a method of specifying how funds can be used, or in other words, it's a way of restricting where funds can be spent.

Poly:

Yep, it effectively earmarks the UTXO to be distributed in a specific manner, once you commit to it, you can't take it back, it's now consensus bound, and only its new owner can decide how to spend their funds.

When a UTXO is created on-chain, our instinct is to assume that a single private key is holding that UTXO in place. But if it was a CTV bound UTXO, when the UTXO is spent, you'll see an extra 32 byte hash paired with the new transaction that represents the hidden state that was inside the original UTXO.

Hua:

You've mentioned "TXID lock/UTXO lock" multiple times. Can I understand it like this: To understand how CTV achieves their functionality, we need to understand what TXID lock is and how it works. TXID lock is a key mechanism.

Poly:

Yes, It creates a strong foundation to build further schemes. The TXID is determined by the contents of a tx. And if you can add inputs to a tx, you can manipulate the TXID. CTV makes you lock the number of inputs and outputs. This is how we ensure that CTV commitments are trustless, if the TXID could be malleable, you could potentially be able to steal someones funds. Once you have a TXID locking mechanism, you combine it with other locking mechanisms such as the time locks to build even greater smart contracts.

Hua:

Why do you think covenants are a rabbit hole?

Poly:

I call covenants a rabbit hole because theres so much you can do with simple restrictions on transactions such as a time lock or a TXID lock. Weve managed to build the entire Lightning network with simple time locks and while it isnt perfect, it is the only truly decentralized L2 in existence. I dont like how its slowly shifting towards being custodial focused, but thats exactly why Ive started down this rabbit hole to begin with: To make our smart contracts more powerful. We refer to the TXID lock as a Template. With Taproot, we gained the ability to have signature aggregation. With Templates and CTV, we gain the ability to have transaction aggregation.

CTV serves as a replacement for a pre-signed transaction oracle, which eliminates the trust and interactivity requirements needed to create more sophisticated smart contracts that are needed for things like vaults and payment pools. The vaults and payment pools that you can make with CTV are technically possible today, but currently theyre precluded by the trust or interactivity needed to make it work. Moreover, with CTV, we can build channel factories, additional layer 2 solutions such as Ark, Timeout-Trees, Stakechains or Surfchains, and JIT fidelity bond solutions such as PathCoin.

Probably my favorite feature is Non-Interactive Channels [NICs] that weve also been referring to as Cold Channels. The basic idea is to take a normal lightning channel and simply place it in a CTV template. What makes this different from a normal lightning channel is that neither party actually needed to be online to create this channel. So if I need a channel with another person, I dont need them to be online to create it, I dont even need to tell them I made it until Im ready to spend from it! This allows for cold storage capability on lightning because I dont need a watchtower nor a node to safeguard my funds in any channels that arent yet active. Third-party coordinators can also establish NICs for two individuals so theres a lot of flexibility in whats possible.

As it stands, CTV wont allow you to build a DEX on-chain, but Im not sure if that is such a bad thing as people are currently trying to build DEXs off-chain using the Lightning Network as it is today. I think this ties back into the Verification vs Computation discussion, how much do you really want on-chain versus how much do you need to verify on-chain. One concern I have about on-chain DEXs, besides the excessive on-chain updates driving higher fees, is MEV. Weve already spotted some MEV from BCHs DEXs transactions and as the market matures, this is bound to get worse.

Hua:

Can you give an example to help us understand how CTV works?

Poly:

Lets say I am expecting to receive 5 BTC, as of right now, the only thing I can do is receive the payment and verify it on-chain. With CTV, I can commit to future addresses or to people and reduce it down to a simple pubkey that I give to my payer to pay me. They dont know the details of it so it remains private to everyone but me. Once I can confirm that theyve paid me, all of the actions I took using the CTV template have now also taken effect.

So if I had elected to create a channel with Bob, once Alice pays me, the channel with Bob is now committed, even though the channel with Bob is nowhere to be seen on-chain, it is only accessible by my template and the transaction that Alice had created. Its only known to me until I share the channel details with Bob. Once I do share the details with Bob, we can use the channel as normal. When we cooperatively close the channel, instead of needing to place an open channel details on-chain, we just place the closing channel on-chain. This allows us to perform transaction cut-through, reducing the total number of transactions that need to be on-chain by at least half for layer 2 solutions.

The opening portion only needs a commitment, what we really care about are the closing details. If this was a shared UTXO with multiple people, we could collaborate to close our transactions together as well, reducing the number of on-chain transactions even further.

Hua:

As you mentioned before, we can introduce different opcodes to implement covenants.

Poly:

So if we re-introduced OP_CAT, I think it would allow for nearly every type of covenant possible as you can emulate any form of introspection for TXHASH. The more limited method would be to introduce opcodes representing the explicit behavior desired like with CTV, CSFS or CheckSeperateSignature. CTV is the ability to do deferred outputs. CSFS is the ability to do deferred signatures so you can defer the payment itself. They sound similar and in fact they work well together as building blocks to enable LN-Symmetry, but the commitments are happening at different levels.

TXHASH and TEMPLATE KEY both enable introspection and serve the same purpose, but TEMPLATE KEY uses a single-byte mode while TXHASH uses multi-byte flags. This allows for much more powerful capabilities inside script and smart contracts, but many are concerned about the side effects it could have. TXHASH and TEMPLATE KEY are more of a CTVv2, something that would make CTV more powerful and expressive.

Hua:

I've noticed that there doesn't seem to be a significant disagreement about whether to support the implementation of covenants. However, in comparison, there seems to be more significant divergence among people regarding which method or set of opcodes to add to implement covenants.

Poly:

I think a large part is theres different camps of thought. Theres a lot of the lack of understanding the intent behind each proposal as they have different goals in mind and are designed in completely different ways.

A lot of developers have only had their eye on Lightning and how its to evolve, they tend to favor opcodes like SH_APO since it enables LN-Symmetry. For a lot of developers that dont particularly like Lightning due to its limitations such as Inbound Liquidity constraints or the requirement to be online, they tend to favor opcodes like OP_CAT, TXHASH as more expressive scaling solutions. The developers that prefer CTV are more neutral and are looking at it from a systems point of view, it doesnt necessarily do any one thing perfectly but it greatly enhances everyones ability to do their preferred thing, whatever it may be without introducing risks that cant be measured since it doesnt introduce introspection.

Hua:

Before discussing covenants, we talked about issues related to opcodes in scripting language and the problem of limited computation leading to state transition. We already know the relationship between covenants and opcodes. Now, let's delve into the issue of state transition. I'm not sure if looking at covenants from the perspective of "state transition" is correct, but this perspective truly fascinates me.

Without covenants, the scripting language's main function is to retrieve transactions' signatures and verify them. The transaction can only be completed when the private key is correct, and there is no intermediate state. With covenants, a transaction can be completed when certain conditions are met. Moreover, a transaction can only be completed when specific conditions are satisfied (not just the correctness of the private key). Can we understand it this way: Covenants indirectly provide conditions for state transition.

Poly:

The covenant is the template shell or the "state". Inside of it, you're going to need to make time locks and other functions to enable the desired functionality that youre wanting, be that a vault, lightning channel or some other layer 2 solution.

So CTV allows for the state creation to occur, but you have to dynamically rebuild the state at each transition to keep it in homeostasis, we call this meta-recursive. Whereas something like SH_APO allows you to create a state and then periodically update that state, making it recursive. CTV can also create a chain of transactions that would allow you to step-through that state.

A good example to think about is Ark, its a giant smart contract, almost like a giant coinjoin and the one running the protocol creates a new state [or rounds as its called] every few seconds to facilitate participants to pay others as needed. Once the Ark operator is ready, they will send a transaction to the mempool to commit the current state to on-chain. These on-chain placeholders can be thought of as the transition states. The operator has to constantly recompute new states to present to the Ark participants and whats sent to on-chain is the verification of that state.

Hua:

Can we understand it this way: Covenants implement a form of smart contract based on verification rather than computation?

Poly:

Yes. Definitely. This smart contract is just comparing a transaction to an associated sha256 hash. Block speed verification would actually increase since theres no signature operations.

Hua:

One direction of development for blockchains is modularity, including off-chain computation. However, Bitcoin seems naturally designed for off-chain computation, appearing behind but actually leading the way. What do you think?

Poly:

Time is a flat circle. Its crazy how it seems like weve come full circle to whats wanted in a blockchain. Bitcoin still seems to have some modularity issues and footprint issues. I wish we had better side-chains that werent simply multi-sig solutions and used actual cryptographic means to secure ones funds and allowed for Unilateral Exits. I think that would help push the boundaries on Bitcoins modularity. Taproot has allowed for even more off-chain computation with things such as BitVM, which would allow us to compute almost anything off-chain. But unfortunately, it cant emulate things inside Bitcoin such as CTV so it seems we still have progress to make.

Hua:

What possibilities can be achieved by combining covenants with other opcodes like DLC?

Poly:

So DLCs have a few problems that would be fixed with covenants such as increasing the flexibility of the parameters of the DLC by making many price points [if were wagering on the price of something such as Bitcoin]. Another one is that hardware wallets [HWW] cant interact with a lot of DLCs, the signing rounds for DLCs and attempting to do it with HWWs causes DLCs to take several minutes to open. With CTV, this delay to enter a DLC can be reduced down to seconds.

Hua:

Are there any other points you'd like to introduce to the readers?

Poly:

We went over a lot of concepts. We touched on how it can be used to mitigate excessive blockspace demand and potential ddos attacks. We discussed how people could save space by making Non-Interactive Channels. I think another good one to discuss is the "L2 exit problem". If we managed to get everyone off of the L1 layer and get them onto a large L2, there's currently no good way to get people off that L2 in an expedited manner. We could think of that L2 as Lightning [we call the potential mass exodus on Lightning, the "Thundering Herd problem], or we could think of Coinbase, Binance or Liquid as the L2. There are people who hold claims to Bitcoin, but their only way to actually acquire that claim is by submitting a transaction to get it placed on-chain. There's millions of people on Coinbase, I have no idea how to get them off of there and onto Bitcoin in any orderly fashion in today's environment. There would be a mempool backlog of 6 months attempting to get people off the exchange. CTV can fix this.

Make an Ark or a Timeout-Tree with CTV. The exchange could even offer the service directly. Everyone could be offloaded from the original "shared UTXO" that was under Coinbase's consensus and pushed into a "shared UTXO" with a consensus of their choice, be it a simple pool or a large Timeout-Tree. This is where it really wrinkles the brain, this was a pure L2 <> L2 conversion. There was no intermediary step requiring me to go down to L1 first. And I can continue repeating this process indefinitely, using any layer of my choice. There isnt a need to return to the base layer unless I was forced there such as from an uncooperative closeout from my channel or perhaps an unvaulting from my vault. The Ark and Timeout-Tree pitfall is that they have rollover requirements, you have to move your funds every few weeks or months or you forfeit your funds. This isnt an ideal solution for long-term funds but works great for any short term holdings and larger markets.

I'd like to provide a full list of every concept thats been developed using CTV and its ability to simply aggregate pre-signed transactions: Non-Interactive Channels, Timeout-Trees, Ark, Darkpools, Payment Pools, Payment Channels, Ball Lightning, Congestion Control, Dpool's, Compaction, Tree Swaps, PathCoin, Stakechains, Surfchains. But dont think of these as all independent Templates, if theres a feature of one that you wish to include in another, you can create your own custom Template to try and find your desired behavior.

References:

Owen's Covenants 101 https://x.com/OwenKemeys/status/1741575353716326835

Owen's Covenants 102 https://x.com/OwenKemeys/status/1744181234417140076

Owens CTV Demo https://x.com/OwenKemeys/status/1752138051105493274

Dallas's Primer https://x.com/dallasirushing/status/1740443095689318566

Batching Lightning Channels Required Covenants https://lists.linuxfoundation.org/pipermail/bitcoin-dev/2023-October/022006.html

Timeout-Trees https://lists.linuxfoundation.org/pipermail/bitcoin-dev/2023-September/021941.html

Continued here:

An Interview With Polyd: The Rabbit hole of Covenants - CryptoDaily