Un-FE’d Covenants

Covenants in Bitcoin represent a method to restrict how and where coins can move. Functional Encryption (FE) offers an exciting avenue to implement covenants without native protocol changes. However, FE remains impractical with current cryptographic tools. In this work, we propose a practical implementation using an oracle-assisted model that combines off-chain computation, key management, and a BitVM-style economic incentive structure to enforce covenants without requiring a Bitcoin soft fork.

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