Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

Summary:

Tamas Blummer discusses the concept of a riskless zero bond and how it can be implemented in Bitcoin for loans with full reserve checks. He proposes a covenant construct that ensures the lender's coins are unconditionally returned at maturity through encumbering them with a taproot path of validation. The borrower can use the coins but only under specific conditions, and they can be transferred to others until maturity when they return to the lender. This proves that the loan is fully covered by reserves.Blummer also explores the idea of returning to full reserve banking and published a writing on fractional vs. full reserve banking in conjunction with this proposal. The email highlights that covenants in Bitcoin transactions allow certain conditions to be attached to the transfer of funds. The author provides examples of how covenants could be used to temporarily transfer control of coins and how different parties could benefit from them. The email outlines transaction level validations that would need to be put in place for transactions with covenants. Blummer expresses excitement about the potential of this proposal and invites others to join in working out the details and integrating covenants with taproot. He welcomes feedback on the generalized covenant construct or its implementation as it can open up more uses than the few examples provided.The email concludes with a link to a paper on Bitcoin covenants for further reading. Overall, the email discusses the potential of covenants in Bitcoin transactions and the importance of full reserve banking. It proposes a covenant construct for loans with full reserve checks and encourages further exploration and collaboration in this area.

Updated on: 2023-06-13T19:44:23.440337+00:00