Segregated Witness (Segwit) Meaning
What is Segregated Witness (Segwit)?
Segregated Witness (SegWit) is an improvement to the original Bitcoin network that mitigates scalability and security flaws by amplifying the block size limits on the blockchain. The upgrade was proposed by Peter Wuille in 2015 and activated in Bitcoin Core in 2017.
SegWit is a soft fork, which means that it is a backwards-compatible change that does not create a new blockchain. It improves the scalability and security of the Bitcoin network by separating the network’s signature data (also known as the “witness” data) from the transaction data.
SegWit provided Bitcoin with a new way to increase the block size limit by removing witness data from the calculation. Before SegWit, the size of the signature data was counted towards the maximum block size limit of 1 MB (approximately 1,650 transactions). This meant that larger transactions with more signature data would take up more space in a block, leaving less room for other transactions. With SegWit, the signature data is separated from the transaction data, and therefore, does not count towards the block size limit. This allows for more transactions to be included in a block, which in turn reduces the overall transaction fees and increases the speed of transaction validation.
How SegWit Works
SegWit works by separating the signature data (“witness” data) from the transaction data and storing it in a separate data structure, which is outside the conventional transaction structure, called the witness. When a Bitcoin transaction is broadcasted, nodes that have upgraded to SegWit can verify the transaction without needing to download the witness data until it is needed later in the process.
By separating the witness data, SegWit increases the effective block size limit, allowing more transactions to fit into a single block. This helps to reduce transaction fees and increase the overall throughput of the network. Consequently, SegWit allows the Bitcoin network to support more complex transactions, such as the Lightning Network, which enables near-instant and low-cost transactions.
One of the most significant benefits of SegWit is its ability to fix the transaction malleability bug, which is the capacity of a transaction to have several valid transaction IDs (TXIDs). Prior to SegWit, hackers could manipulate the transaction ID of a Bitcoin transaction, causing issues for merchants and exchanges. SegWit solves this issue by separating the transaction data from the signature data, making it impossible to modify the TXID.
To use SegWit, Bitcoin nodes need to generate a new type of Bitcoin address, called a SegWit address (also known as a P2WSH-P2WPKH address). This type of address starts with a “3” or “bcl” instead of a “1” and enables nodes to take advantage of the benefits of SegWit.