Segregated Witness (SegWit) is a protocol upgrade that was created back in 2015. It was introduced to tackle the scalability issues that blockchain networks were facing, and still face today.
Typically, the Bitcoin network validates a new block every 10 minutes, with each block containing multiple transactions. Therefore, the size of the block directly impacts how many transactions can be confirmed at once. Right now, the Bitcoin blockchain can handle about 7 transactions per second.
The core idea behind SegWit is to rearrange block data so that signatures are separated from transaction data. Essentially, the SegWit upgrade involves isolating the witnesses (signatures) from the transaction data. This change allows for a greater number of transactions to fit into a single block, boosting the network’s transaction throughput.
With the current capacity of processing only around 7 transactions per second, a Bitcoin transaction can sometimes take quite a while to complete. This is significantly slower compared to traditional payment systems and financial networks, which can manage thousands of transactions every second.
Segregated Witness was developed in 2015 by Bitcoin developer Pieter Wuille, along with other contributors from Bitcoin Core. In August 2017, the SegWit upgrade was rolled out as a soft fork on the Bitcoin network.
Nowadays, several cryptocurrency projects, including Bitcoin and Litecoin, are utilizing SegWit. This protocol upgrade has brought numerous advantages, such as faster transaction speeds and increased block capacity. Additionally, SegWit addressed the issue known as transaction malleability (which will be discussed below).
The Benefits of SegWit
Capacity Boost
One of the major advantages of SegWit is that it enhances block capacity. By eliminating the signature data from the transaction input, we can fit more transactions into a single block.
Transactions are made up of two key parts: inputs and outputs. An input holds the sender’s public address, while the output contains the recipient’s public address. However, the sender needs to verify that they have the funds being sent, which they do using a digital signature.
Without Segregated Witness, signature data can occupy as much as 65% of a block. With SegWit, this signature data is relocated from the transaction’s input. This effectively boosts the block size from 1 MB to around 4 MB.
It’s important to note that SegWit doesn’t actually increase the block size. Instead, it’s a clever engineering fix that raises the effective block size without needing to change the block size limit (which would necessitate a hard fork). To clarify, the real block size remains at 1 MB, but the effective block size limit is now 4 MB.
Additionally, SegWit brought in the concept of block weight. We can think of block weight as a new way to look at block size. In essence, block weight measures all block data, including transaction data (1 MB) and signature data (up to 3 MB), which is no longer included in the input field.
Transaction Speed Boost
With a block capable of holding more transactions, SegWit also speeds up transaction processing, as a greater number of transactions can flow through the blockchain. Even though mining a block still takes the same amount of time, more transactions are being handled within it, resulting in a higher TPS rate.
The increase in transaction speed has also led to lower transaction fees on the Bitcoin network. Prior to SegWit, it was common to pay over $30 for a transaction. Now, thanks to SegWit, that cost has plummeted to under $1 per transaction.
Conclusion
The rollout of SegWit was the largest upgrade to Bitcoin‘s protocol, and the fact that it was embraced and executed by the decentralized community adds to its intrigue.
The launch of SegWit represented a significant advancement in addressing various issues tied to Bitcoin and other blockchain systems – particularly concerning scalability. By merging SegWit with second-layer protocols, blockchain networks can manage a higher volume of transactions more efficiently and at reduced costs.
Even though SegWit is a robust and groundbreaking solution, it hasn’t been completely embraced yet. Right now, about 53% of Bitcoin addresses are utilizing SegWit.