What is SegWit?

SegWit, short for Segregated Witness, is a major protocol upgrade introduced to the Bitcoin network in 2017. Its primary goal is to separate (or “segregate”) transaction signatures (the “witness” data) from the main part of the transaction. This helps increase Bitcoin’s effective block capacity and addresses a critical issue known as transaction malleability.

Why was SegWit introduced?

• Fixing Transaction Malleability: Before SegWit, certain parts of a transaction could be altered, changing the transaction ID without affecting the transaction’s actual content. Separating the signature data removed this vector of malleability, making multi-layer solutions and smart contracts easier to implement.
• Increasing Throughput: By moving the witness data out of the traditional block structure, more non-witness data can fit into each block. This effectively increases Bitcoin’s transaction capacity without raising the block size limit directly.
• Lower Fees for SegWit Transactions: Because of the way transaction weight is calculated under SegWit, users who adopt SegWit addresses (starting with “bc1...”) often benefit from lower fees compared to legacy (non-SegWit) transactions.

How does SegWit work?

In a SegWit transaction, the witness data—which includes the signature and related information—resides outside the original block structure. The new witness section is discounted when calculating the total weight (size) of the transaction. This reduces the amount of “weight” per transaction, allowing more transactions to fit into each block.

Benefits of SegWit

• Scalability Enhancement: More transactions can be processed in each block, leading to a moderate throughput increase for the Bitcoin network.
• Reduced Transaction Malleability: By segregating signatures, the transaction ID remains consistent, enabling more advanced protocols such as the Lightning Network.
• Lower Fees for Users: SegWit transactions generally require fewer weight units, which translates to lower fees (in sat/vByte).
• Enabling Layer-2 Solutions: SegWit paves the way for technologies like the Lightning Network, offering faster and cheaper off-chain payments.

Adopting SegWit

Many modern Bitcoin wallets now support SegWit by default. If you’re looking to reduce fees and help the network run more efficiently, consider creating a P2WPKH or P2WSH address (addresses starting with bc1) for your Bitcoin transactions.

Overall, SegWit is a pivotal upgrade that not only improved the immediate throughput of the Bitcoin network but also laid the groundwork for more advanced scaling and innovation in the future.