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Source: arxiv.org ยท
A bitcoin \textit{covenant} is a mechanism to enforce conditions on future
bitcoin transactions. A bitcoin \textit{vault} is a specific type of covenant
transaction that enforces a time-lock on the transfer of control of funds to a
hot wallet, but enables an immediate transfer of funds into a deep cold
recovery wallet. This paper demonstrates how to integrate a bitcoin vault into
a custody protocol and demonstrates the security properties of that protocol.
The vault is implemented using pre-signed transactions with secure key deletion
(as proposed in \cite{Swambo2020cov}). It is shown that vault-custody protocols
enable the wallet owner to specify their desired balance for an inherent
trade-off between the security of and accessibility of bitcoin holdings by
adjusting the length of time-locks used. It is also demonstrated that wallet
owners have increased control of risk-management by compartmentalizing funds
across numerous vault transactions. While it isn't realistic to completely
prevent theft, the most likely theft scenarios (compromising the hot wallet)
have severely limited profitability for an attacker, deterring attempts at
theft from the beginning. The proposed architecture was designed to offer
defence-in-depth through redundancy and fault-tolerant functionality as well as
countermeasures for class breaks through diversity across hardware and software
layers. Finally, the architecture employs a detection (a watchtower) and
response system that enables fail-safe recovery from attempted or partial
thefts through a second type of covenant transaction, a push-to-recovery-wallet
transaction.

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