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Writing Covenants & Introspection

Covenants are all the rage in Nexa smart contracts. But what are they, and how do you use them? In one sentence: a covenant is a constraint on how money can be spent. A simple example is creating a smart contract that may only send money to one specific address and nowhere else. The term Covenant originates in property law, where it is used to constrain the use of any object - or in the case of Nexa, the use of money.

Bitcoin covenants were first proposed in a paper titled Bitcoin Covenants, but several other proposals have been created over the years. Nexa has implemented so-called Native Introspection which enables efficient and accessible covenants. This was extended with token introspection opcodes with the implementation of OP_PUSH_TX_STATE support.

Accessible introspection data​

When using NexScript, you can access a lot of introspection data that can be used to inspect and constrain transaction details, such as inputs and outputs.

  • int this.activeInputIndex - Index of the input that is currently under evaluation during transaction validation.
  • bytes this.activeBytecode - Contract bytecode of the input that is currently under evaluation during transaction validation.
  • int tx.version - Version of the transaction.
  • int tx.locktime - nLocktime field of the transaction.
  • int tx.inputs.length - Number of inputs in the transaction.
  • int tx.inputs[i].value - Value of a specific input (in satoshis).
  • bytes tx.inputs[i].lockingBytecode - Locking bytecode (scriptPubKey) of a specific input.
  • bytes tx.inputs[i].unlockingBytecode - Unlocking bytecode (scriptSig) of a specific input.
  • bytes32 tx.inputs[i].outpointTransactionHash - Outpoint transaction hash of a specific input.
  • int tx.inputs[i].outpointIndex - Outpoint index of a specific input.
  • int tx.inputs[i].sequenceNumber - nSequence number of a specific input.
  • int tx.outputs.length - Number of outputs in the transaction.
  • int tx.outputs[i].value - Value of a specific output (in satoshis).
  • bytes tx.outputs[i].lockingBytecode - Locking bytecode (scriptPubKey) of a specific output.

Using introspection data​

While we know the individual data fields, it's not immediately clear how this can be used to create useful smart contracts on Nexa. But there are several constraints that can be created using these fields, most important of which are constraints on the recipients of funds, so that is what we discuss.

Restricting P2PKT recipients​

One interesting technique in Nexa is called blind escrow, meaning that funds are placed in an escrow contract. This contract can only release the funds to one of the escrow participants, and has no other control over the funds.

contract Escrow(bytes20 arbiter, bytes20 buyer, bytes20 seller) {
    function spend(pubkey pk, sig s) {
        require(hash160(pk) == arbiter);
        require(checkSig(s, pk));

        // Check that the correct amount is sent
        int minerFee = 1000; // hardcoded fee
        int amount = tx.inputs[this.activeInputIndex].value - minerFee;
        require(tx.outputs[0].value == amount);

        // Check that the transaction sends to either the buyer or the seller
        bytes25 buyerLock = new LockingBytecodeP2PKT(buyer);
        bytes25 sellerLock = new LockingBytecodeP2PKT(seller);
        bool sendsToBuyer = tx.outputs[0].lockingBytecode == buyerLock;
        bool sendsToSeller = tx.outputs[0].lockingBytecode == sellerLock;
        require(sendsToBuyer || sendsToSeller);
    }
}

The contract starts by doing some checks to make sure the transaction is signed by the arbiter. Next up it checks that the full contract balance (tx.inputs[this.activeInputIndex].value) is sent to the first output by accessing tx.outputs[0].value. Finally it checks that the receiver of that money is either the buyer or the seller using LockingBytecodeP2PKT and tx.outputs[0].lockingBytecode. Note that we use a hardcoded fee as it is difficult to calculate the exact transaction fee inside the smart contract.

Restricting P2ST recipients​

Besides sending money to P2PKT addresses, it is also possible to send money to a smart contract (P2ST) address. This can be used in the same way as a P2PKT address if the script hash is known beforehand, but this can also be used to make sure that money has to be sent back to the current smart contract.

This is especially effective when used together with time constraints. An example is the Licho's Last Will contract. This contract puts a dead man's switch on the contract's holdings, and requires the owner to send a heartbeat to the contract every six months. If the contract hasn't received this heartbeat, an inheritor can claim the funds instead.

contract LastWill(bytes20 inheritor, bytes20 cold, bytes20 hot) {
    function inherit(pubkey pk, sig s) {
        require(tx.age >= 180 days);
        require(hash160(pk) == inheritor);
        require(checkSig(s, pk));
    }

    function cold(pubkey pk, sig s) {
        require(hash160(pk) == cold);
        require(checkSig(s, pk));
    }

    function refresh(pubkey pk, sig s) {
        require(hash160(pk) == hot);
        require(checkSig(s, pk));

        // Check that the correct amount is sent
        int minerFee = 1000; // hardcoded fee
        int amount = tx.inputs[this.activeInputIndex].value - minerFee;
        require(tx.outputs[0].value == amount);

        // Check that the funds are sent back to the contract
        bytes23 contractLock = tx.inputs[this.activeInputIndex].lockingBytecode;
        require(tx.outputs[0].lockingBytecode == contractLock);
    }
}

This contract has three functions, but only the refresh() function uses a covenant. Again it performs necessary checks to verify that the transaction is signed by the owner, after which it checks that the entire contract balance is sent. It then uses tx.inputs[this.activeInputIndex].lockingBytecode to access its own locking bytecode, which can be used as the locking bytecode of this output. Sending the full value back to the same contract effectively resets the tx.age counter, so the owner of the contract needs to do this every 180 days.

Restricting P2PKT and P2ST​

The earlier examples showed sending money to only a single output of either P2PKT or P2ST. But there nothing preventing us from writing a contract that can send to multiple outputs, including a combination of P2PKT and P2ST outputs. A good example is the Licho's Mecenas contract that allows you to set up recurring payments where the recipient is able to claim the same amount every month, while the remainder has to be sent back to the contract.

contract Mecenas(bytes20 recipient, bytes20 funder, int pledge, int period) {
    function receive() {
        require(tx.age >= period);

        // Check that the first output sends to the recipient
        bytes25 recipientLockingBytecode = new LockingBytecodeP2PKT(recipient);
        require(tx.outputs[0].lockingBytecode == recipientLockingBytecode);

        // Calculate the value that's left
        int minerFee = 1000;
        int currentValue = tx.inputs[this.activeInputIndex].value;
        int changeValue = currentValue - pledge - minerFee;

        // If there is not enough left for *another* pledge after this one,
        // we send the remainder to the recipient. Otherwise we send the
        // pledge to the recipient and the change back to the contract
        if (changeValue <= pledge + minerFees) {
            require(tx.outputs[0].value == currentValue - minerFee);
        } else {
            require(tx.outputs[0].value == pledge);
            bytes changeBytecode = tx.inputs[this.activeInputIndex].lockingBytecode;
            require(tx.outputs[1].lockingBytecode == changeBytecode);
            require(tx.outputs[1].value == changeValue);
        }
    }

    function reclaim(pubkey pk, sig s) {
        require(hash160(pk) == funder);
        require(checkSig(s, pk));
    }
}

This contract applies similar techniques as the previous two examples to verify the signature, although in this case it does not matter who the signer of the transaction is. Since the outputs are restricted with covenants, there is no way someone could call this function to send money anywhere but to the correct outputs.

Local state​

Smart contracts which persist for multiple transactions might want to keep data for later use, this is called local state. With GroupTokens local state can be kept in the NFT data (rest bytes after 32 bytes long group Id) of the smart contract UTXO. Because the state is not kept in the script of the smart contract itself, the base contract address can remain the same unlike with the "simulated state" strategy where the P2ST locking bytecode of the new iteration of the contract was restricted to contain the updated state, which caused the address to change each time.

To demonstrate this we consider the Mecenas contract again, and focus on a drawback of this contract: you have to claim the funds at exactly the right moment or you're leaving money on the table. Every time you claim money from the contract, the tx.age counter is reset, so the next claim is possible 30 days after the previous claim. So if we wait a few days to claim, these days are basically wasted.

Besides these wasted days it can also be inconvenient to claim at set intervals, rather than the "streaming" model that the Ethereum project Sablier employs. Instead of set intervals, you should be able to claim funds at any time during the "money stream". Using local state, we can approach a similar system with Nexa.

contract Mecenas(
    bytes8 initialBlock,
) {
    function receive() {
        // configure these constants
        bytes20 constant recipient = 0x;
        bytes20 constant funder = 0x;
        int constant pledgePerBlock = 0;

        // Check that the first output sends to the recipient
        bytes23 recipientLockingBytecode = new LockingBytecodeP2PKT(recipient);
        require(tx.outputs[0].lockingBytecode == recipientLockingBytecode);

        // Check that time has passed and that time locks are enabled
        int initial = int(initialBlock);
        require(tx.time >= initial);

        // Calculate the amount that has accrued since last claim
        int passedBlocks = tx.locktime - initial;
        int pledge = passedBlocks * pledgePerBlock;

        // Calculate the leftover amount
        int minerFee = 1000;
        int currentValue = tx.inputs[this.activeInputIndex].value;
        int changeValue = currentValue - pledge - minerFee;

        // If there is not enough left for *another* block after this one,
        // we send the remainder to the recipient. Otherwise we send the
        // remainder to the recipient and the change back to the contract
        if (changeValue <= pledgePerBlock + minerFee) {
            require(tx.outputs[0].value == currentValue - minerFee);
        } else {
            // Check that the outputs send the correct amounts
            require(tx.outputs[0].value == pledge);
            require(tx.outputs[1].value == changeValue);

            // Extract the template hash from the lockingbytecode
            bytes templateHash = hash160(this.activeBytecode);

            // Create the new constraintScript
            bytes newConstrainScript = 0x08 + bytes8(tx.locktime);
            bytes20 constraintHash = hash160(newConstrainScript);

            // Create the locking bytecode for the new contract and check that
            // the change output sends to that contract
            bytes newContractLock = new LockingBytecodeP2ST(templateHash, constraintHash, 0x);
            require(tx.outputs[1].lockingBytecode == newContractLock);
        }
    }

    function reclaim(pubkey pk, sig s) {
        require(hash160(pk) == funder);
        require(checkSig(s, pk));
    }
}

Instead of having a pledge per 30 day period, we define a pledge per block. At any point in time we can calculate how much money the recipient has earned. Then the covenant enforces that this amount is withdrawn from the contract. The remainder is sent to a new stream that starts at the end of of the previous one. The template script of the smart contract is reused but the new constraint script is constructed by the contract itself. This process can be applied to the new stream until the money in the stream runs out.

Conclusion​

We have discussed the main uses for covenants as they exist on Nexa today. We've seen how we can achieve different use case by combining transaction output restrictions to P2ST and P2PKT outputs. We also touched on more advanced subjects such as mutating the local state through the constraints script. Covenants, script templates and Group tokens are the main differentiating factor for Nexa smart contracts when compared to BTC, while keeping the same efficient stateless verification.