What is SegWit? | Beginner's Guide

What is SegWit? | Beginner's Guide

SegWit does not increase the block size limit, but allows more transactions in 1 MB blocks.

What is SegWit?

SegWit (Segregated Witness) is a protocol upgrade that changes the way how data is stored. It was activated on litecoin on 10 May, 2017, and on bitcoin on 23 August, 2017. SegWit is the process by which the block size limit on a blockchain is increased by removing signature data from Bitcoin transactions. When certain parts of a transaction are removed, this frees up space or capacity to add more transactions to the chain.

SegWit introduced a new concept called “block weight”. This is the combined size of the block with and without signature data, which has a limit of 4 MB, while the base block size limit for transactions remains at 1 MB. This means that SegWit is compatible with the previous protocol and and avoids the need for a hard fork.

  • Increases the number of transactions that a block can take
  • Decreases transaction fees
  • Reduces the size of each individual transaction
  • Transactions can now be confirmed faster because the waiting time will decrease
  • Helps in the scalability of bitcoin
  • Since the number of transactions in each block will increase, it may increase the total overall fees that a miner may collect
  • Removes transaction malleability
  • Aids in the activation of lightning protocol
  • Removes the quadratic hashing problem: Quadratic hashing is an issue that comes along with block size increase. The problem is that in certain transactions, signature hashing scales quadratically:

  • Miners will now get lesser transaction fees for each individual transaction
  • The implementation is complex and all the wallets will need to implement segwit themselves. There is a big chance that they may not get it right the first time
  • It will significantly increase the usage of resources since the capacity, transactions, bandwidth everything will increase
  • As the creation of Bitcoin Cash shows, it did ultimately split up the Bitcoin Core community
  • Another problem with Segwit is the maintenance. The sidechain containing the signature data will need to be maintained by miners as well. However, unlike the main blockchain, the miners have no financial benefits on doing so, it will need to be done pro-bono or some reward scheme needs to be thought of to incentivize the miners