TLDR: Bitcoin’s scripting language is limited on purpose, which means that advanced smart contracts are currently not possible. But now there is a new Bitcoin Improvement Proposal (BIP-420), which would enable covenants, making it easier to build trustless scaling solutions on Bitcoin beyond Lightning. The Taproot Wizards, led by Eric Wall and Udi Wertheimer, have raised $30 million to push for its adoption. Critics worry that OP_CAT could introduce MEV risks similar to Ethereum. But the wizards claim that it would enhance Bitcoin’s expressiveness without compromising decentralization.
When designing Bitcoin, Satoshi Nakamoto had technical ambitions that were either unachievable at the time or considered too risky. For instance, Nakamoto believed that Bitcoin offered insufficient privacy and would have liked to implement zero-knowledge proofs. However, that technology was not yet advanced enough around 2008.
Another one of Nakamoto’s aspirations was smart contracts on Bitcoin, which could have enabled DeFi applications such as marketplaces for borrowing, lending, and trading. However, he was concerned that the OP_CAT function—required for such capabilities—would make the Bitcoin network vulnerable to denial-of-service (DoS) attacks (i.e., spamming the network). Bitcoin’s scripting system was designed to be simple and predictable, deliberately blocking recursive loops that could lead to exponential memory consumption on network nodes. Nakamoto feared that OP_CAT could leave the door open to such vulnerabilities.
Taproot Wizards Advocate for OP_CAT
In 2023, developers revisited OP_CAT, proposing a modified, streamlined version under Bitcoin Improvement Proposal 347 (BIP-347). This updated version aims to provide greater functionality without imposing unbounded memory demands on nodes.
The latest development is that the Taproot Wizards—a movement led by Eric Wall and Udi Wertheimer—are backing the proposal. Wall and Wertheimer have raised $30 million to develop OP_CAT and promote its adoption within the Bitcoin community. Both are influencers – but very tech-savvy influencers – who believe that the Bitcoin ecosystem has become too stagnant. They are not afraid to challenge the status quo.
Now, the Taproot Wizards have successfully closed a $30 million Series A investment round to push OP_CAT forward. The proposal would require a soft fork to be implemented. Wall and Wertheimer have formally submitted OP_CAT under BIP-420.
If OP_CAT is reintroduced, it could enable native smart contract functionality on Bitcoin without compromising security.
OP_CAT: Basic Code with Huge Implications
The funny thing about OP_CAT is that it’s a piece of script of essentially 8 lines long.
It’s extremely basic: it allows the protocol to concatenate (string) two values. Basically, to paste a string of characters after another. This is extremely simple. It’s a so-called ‘primitive’. But it unlocks all kinds of things that are hugely important in cryptography.
Why is OP_CAT so powerful? Yours truly will be forgiven that he doesn’t have the programming knowledge to full grasp this. But what it boils down to is that one can create covenants with just OP_CAT and no other changes to Bitcoin. Covenants allow developers to create state machines inside of Bitcoin where coins must be spent in various, predefined “paths”.
Another way to say this is that with these paths, Bitcoin transactions don’t just define where funds go—they can define where they must go next. This could make Bitcoin more programmable, similar to Ethereum’s smart contracts, but in a more controlled and limited way.
How OP_CAT Differs from Existing Bitcoin Smart Contract Solutions
There are already ways to implement smart contracts in the Bitcoin ecosystem, but these solutions do not run on Bitcoin itself. Instead, they rely on sidechains like Stacks or Layer 2 solutions such as the Lightning Network.
Another approach, BitVM (Bitcoin Virtual Machine), also enables smart contract execution. However, BitVM does not perform computation on Bitcoin’s base layer—it only allows the on-chain resolution of disputes when necessary.
What makes OP_CAT fundamentally different is that it would allow fully native smart contracts on Bitcoin, without depending on external chains or off-chain computational environments. Eric Wall explains:
“OP_CAT enables more powerful, user-friendly Layer 2 protocols that users can interact with in a non-custodial manner—without having to store their funds in custodial wallets, as is the case with many leading Lightning Network implementations today. This problem defeats the very purpose of using Layer 2 solutions in the first place.”
The Role of OP_CAT in Covenants and Bitcoin Scaling
One of the biggest ongoing challenges in Bitcoin is scalability—how to support more transactions without increasing the block size and making node operation too expensive for ordinary users.
Historically, Bitcoin had two choices:
- Increase the block size to allow more transactions, but at the cost of making Bitcoin harder to validate at home.
- Scale using Layer 2 solutions, like the Lightning Network, which keeps most transactions off-chain and only settles on-chain when necessary.
The Bitcoin community chose Layer 2 scaling, leading to the development of Lightning, which relies on channel-based transactions. However, Lightning has proven to be complicated—liquidity management is difficult, and many users resort to custodial solutions, undermining Bitcoin’s core values of self-sovereignty and decentralization.
This is where covenants come in.
What Are Covenants and Why Do They Matter?
A covenant is a type of smart contract condition that restricts how a Bitcoin UTXO (unspent transaction output) can be spent in the future. With covenants, Bitcoin could enforce spending conditions, such as:
- Vaults that prevent BTC from being spent immediately if a key is lost.
- Non-custodial Layer 2 protocols that don’t rely on Lightning-style liquidity channels.
- More efficient batch processing, allowing Bitcoin to scale without custodians.
OP_CAT allows covenants to be implemented efficiently by concatenating transaction elements and verifying Merkle trees.
Could OP_CAT Introduce MEV to Bitcoin?
The Balrog of MEV: Learning from Ethereum’s Mistakes
In his article about the risks of OP_CAT, Eric Wall invokes Tolkien’s Lord of the Rings. Gandalf is reluctant to lead the Fellowship through the Mines of Moria—he fears an unseen terror lurking in the depths. That terror turns out to be the Balrog.
Similarly, in blockchain design, maximal extractable value (MEV) is an unseen force that emerges when a blockchain becomes too expressive. MEV allows miners or validators to reorder transactions for profit, creating centralization risks.
In Ethereum, MEV has led to borderline censorship, where some block builders exclude transactions to comply with regulations). Because of the profitability and complexity that successful MEV entails, only a few entities can do this. Centralization is the consequence.
Bitcoin has largely avoided MEV because its scripting system is simple and predictable. However, critics worry that introducing OP_CAT could make Bitcoin more MEV-prone by:
- Enabling more expressive Layer 2 protocols, which could create MEV opportunities.
- Allowing ‘transaction introspection’, which might make transaction ordering more valuable.
Argument why OP_CAT Is Not a Threat to Bitcoin’s Decentralization
According to Eric Wall, despite these concerns, OP_CAT does not fundamentally alter Bitcoin’s security model. Firstly, t does not introduce Ethereum-style complex smart contracts. It also does not require changes to Bitcoin’s consensus mechanism. Nor does it affect block size or increase computational load on nodes.
Instead, OP_CAT provides Bitcoin with better tools to scale safely by making Layer 2 solutions more trustless and efficient, preventing the need for custodial wallets and centralized intermediaries.
As Eric Wall puts it:
“Expressive economic activity can be secured by a blockchain like Bitcoin without drastic MEV consequences for the base layer—so long as Layer 2 sequencing is safely separated from Bitcoin mining incentives.”
Conclusion
The Taproot Wizards care. Their push for OP_CAT is an effort to introduce powerful, Bitcoin-native smart contract capabilities while ensuring Bitcoin remains decentralized and efficient. Whether the community ultimately accepts BIP-420 will depend on whether developers, miners, and users believe that the benefits of covenants and better Layer 2 scaling outweigh the risks of expanding Bitcoin’s scripting capabilities. Expect a strong pushback from conservative forces in the community, who have lamented the unexpected side effects of the latest big soft fork Taproot, which unintentionally made tokens and NFT’s possible on Bitcoin…
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
