2025 Bitcoin Upgrade: Unlocking the Power of Covenants

Bitcoin Updates in 2025: What Are Covenants and Will a Soft Fork Happen

Why Are Bitcoin Updates Rare? Bitcoin is known for being conservative when it comes to changes. Unlike some other blockchains, it rarely updates its core protocol. But 2025 could be a game-changer with the introduction of covenants — a feature that could make Bitcoin transactions more secure and flexible.

What Are Covenants? Every Bitcoin address comes with rules for spending its funds. The simplest rule is: “Does the sender own the private key for this address?” Covenants are new rules that could limit how Bitcoin can be spent. For example, they might restrict funds to be sent only to specific, pre-approved addresses. Think of it like a gift card that can only be used in certain stores.

There are several proposals to introduce covenants, with Check Template Verify (CTV) being the most discussed. This proposal would allow Bitcoin transactions to follow strict templates, ensuring they comply with preset rules. Other proposals like CheckTXHashVerify and OP_VAULT suggest different ways to implement similar features.

The Controversy Around Covenants

Supporters of covenants argue they can enhance Bitcoin’s security and flexibility, enabling features like shared wallets or better fraud protection. Critics, however, fear they could harm Bitcoin’s fungibility — the idea that all coins are equally interchangeable. Covenants might create “tainted” coins that are harder to spend freely, potentially undermining Bitcoin’s neutrality.

What About the Soft Fork?

The idea of introducing covenants via a soft fork — a backward-compatible network upgrade — has sparked another debate. Some developers propose using a user-activated soft fork (UASF), which relies on nodes, not miners, to approve the update. This method is controversial because it bypasses miners and risks splitting the network into competing versions.

UASF gained attention during Bitcoin’s SegWit upgrade in 2017 but was ultimately avoided. If attempted in 2025, it would set a new precedent for how updates are handled.

What Happens Next?

Covenants are still in the discussion phase, and there’s no guarantee they’ll be adopted. Even if the idea gains traction, the community would need to agree on the specifics and whether UASF is the right approach.

TL;DR: Bitcoin could become safer and more flexible with new rules called covenants that restrict how funds can be spent. This could enhance security but might threaten Bitcoin’s anonymity and neutrality. A potential soft fork to implement this also raises concerns about splitting the network.