What is Segwit (Segregated Witness) and How Does It Work?

segwit bitcoin

When you start going through the growth and adoption of something, there will always be problems. Just like Notorious B.I.G said it, “Mo’ Money, Mo’ Problems”.  When credit cards came out, it started to have issues handling so many transactions as adoption increased. Then it started running through the issue of fraudulent charges. These all needed to be combated with so they started implementing features and technologies that relied on the foundation of the credit card itself. Every technology after the initial card’s technology is considered level 2, level 3 and so on. Visa currently processes about 2,000 transaction per second and can process up to 56,000 transactions per second.

What is Segwit?

segwit activatedAs Bitcoin start’s getting more attention, more people are starting to use it. Satoshi Nakamoto hadn’t intended there to be so many transactions when he first created the Bitcoin network. Most of the Bitcoin miners and users ended up asking for Segregated Witness (Segwit for short) which was part of Bitcoin Improvement Proposals number BIP 141, a soft fork in the network. A soft fork is a forward compatible upgrade that doesn’t need all the users to update the network. This was done to solve a blockchain size so miners would keep approving transactions with the same block size but do less work. We will discuss blocksize and what blocks are later.

On August 1st, 2017, Bitcoin finally implemented Segregated Witness into its network. One part of the community went ahead to create Bitcoin Cash, a derivative of Bitcoin based on the same blockchain.

How Does Segwit Work?

Segwit works by splitting the transactions as they get sent onto the blockchain into two parts. It removes the unlocking signatures parts so the miner wouldn’t do it. Instead it gets added to the end of the transaction. It makes transactions move like an assembly line rather than have one person carry all the world. This is the witness part of the name.

So the first part of the transaction would contain the senders and receiver’s data. The new added on part would contain the scripts and signature that is going on. SegWit removes the block limit and changes the limit to a weight of 4 million units which allows up to 4MB blocks, but in realistic usages ~2MB block averages if most transactions are segwit.

A transaction data of a Bitcoin transaction contains 2 parts, the inputs and outputs. The input is the senders public address and the output is the recipients public address. When you send a transaction, the sender puts the recipients address and sends their funds over. The main part of this transaction that takes up the most data is the signature which verifies the sender has sent the money and a portion of the input that verifies the sender has the amount of money needed to transfer the set amount.

Litecoin was one of the first coins to implement segwit and it turned out to be a complete success from the first transaction on Since then, Vertcoin, Groestlcoin, DigiByte and Bitcoin have added it to their networks. Going back to our level 2 and level 3 talk, Segregated Witness makes it easier for more levels and layers for scaling to be added on.

Layman’s Terms

In other words, Segwit is a technological add-on to Bitcoins network to help dissect the transaction to make the data smaller. Smaller data means faster and safer transaction times since there is work being outsourced. Think of aero defense companies, when they want to make parts for an airplane or fighter jet, they will not risk contracting out the work to one company. Instead they outsource the work to several different companies and this helps them make sure they get parts and components back much quicker. Since one company does not handle all the parts, it also makes it safer to companies will not be able to duplicate or harm the production in anyway.

Benefits of Segwit

  • Faster Transactions: Segwit’s main purpose is definitely not to make transactions faster but to prevent malleability. However, it indirectly allows faster confirmations by fixing the malleability. Just like it will take you longer to download a movie compared to a song because the movie is a bigger file, this works the same.
  • Cheaper Transactions: Transaction fees were decreased with Segwit because SegWit transactions allow for more capacity and signatures are weighted differently..
  • Safer Transactions: Segwit makes it harder for the network to be hacked since it outsources the work.
  • More Transactions: The problem with having a bigger block size is because first of all it does not go with the vision of the original Bitcoin whitepaper. When Segwit was implemented, it quickly saw a decrease in the memory pool, which holds all the unconfirmed transactions. It noticed the unconfirmed transaction data drastically decreased from 140 million bytes to 6 million bytes all while the number of transaction a day stayed the same.
  • Lightning Network: The lightning network is a level 2 add-on technology that will allow two people to transact as many
    times
  • between them before it settles on the blockchain. This goes back to the scaling issue which can potentially create the ability to have more transaction than any Visa.

What are Blocks?

How blocks work

Most cryptocurrencies on the blockchain have blocks and the blocks are where the information contained on the blockchain are stored. If the blockchain is the accountant then the blocks are the record book or ledger. It is a permanent space of records which cannot be altered or deleted. The SegWit debate occured because some miners, who ended up going to create and mine Bitcoin Cash, wanted bigger block sizes. Miners motivations are far more complex than this for launching Bcash. One of their motivations involved Bitmain and partners wanting to continue exploiting the PoW flaw covertly for a 20% advantage over other miners and segwit undermines this.

Segwit2X

When the developers of Bitcoin came to an agreement named the “New York Agreement” (NYA) to implement Segwit with bigger block sizes, they proposed SegWit with 8MB blocks, which would double the current blocksize. This is supposed to happen three months after SegWits activation, which will be November 2017.

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