(previously named SIGHASH_NOINPUT), is a soft-fork that allows a
transaction to be signed without reference to any specific previous output,
such that any output with a matching signature can be dynamically added later.
There are two main super-powerful things you can do with BIP-118 that you
cannot do otherwise:
As an off-chain value transfer mechanism in itself, used to transfer
large values as single, unbroken UTXOs (with change being given with
statechains of smaller denominations or through other means).
To open Lightning channels on top of these UTXOs. And then these
channels can be used or transferred to others without the chain
To do any fancy thing that involves UTXO ownership (Ordinals
or DLCs, for
example), but off-chain.
Statechains and even
Lightning on top of statechains
are already implemented by the
Mercury Wallet, but using a
much worse set of tradeoffs (which are ready to be swapped for the
improved Eltoo-based version when that is available).
Covenants, a way to make sure
one transaction can only be spent by an specific other can be
this secret little trick
that embeds the signature for transaction t+1 right inside the
output of transaction t.
These covenants enable very important things such as: