A quick introduction to SegWit

In 2017, the Bitcoin Core upgrade known as SegWit, also known as Segregated Witness, was introduced. SegWit enhanced several parts of Bitcoin, and it also made room for further upgrades, like Taproot.

The first and most important fix for transaction malleability was made via SegWit. Additionally, it increased Bitcoin’s block size limit, allowing for the inclusion of more transactions in each block. Last but not least, SegWit added two new script types—methods for transmitting and receiving bitcoin—as well as a new encoding technique called Bech32.

Bitcoin, however, came out stronger and more scalable thanks to the SegWit upgrade, demonstrating that its decentralization could resist an attempt at takeover by miners and community leaders.

Key features of SegWit

• Enhancing transaction throughput on a blockchain network is SegWit’s primary objective. It’s important to remember that Litecoin, not Bitcoin, was the first cryptocurrency to deploy the SegWit layer.

• In essence, SegWit increases the number of transactions that may be included in a block of the same size while reducing the weight of transactions in a block on the blockchain by splitting a transaction into two sections.

• The sender and receiver’s wallet addresses are found in the first part of a transaction, and the “witness data,” including transaction signatures, is found in the second part.

• SegWit significantly reduces transaction size by removing the “witness data” from the main block. As a result, the transactions take up less space, allowing for more transactions per block and significantly boosting the Bitcoin network’s capacity.

• Additionally, SegWit provided a remedy for a bug in the Bitcoin protocol that allowed users to modify transaction hashes. A single character modification in a digital signature can provide a completely new transaction hash. It is no longer feasible to update the transaction ID because the signature has been removed from the transaction data and placed in the separate witness data. As a result, SegWit provides a remedy for transaction malleability.

Before we move forward, let’s quickly overview the transaction malleability.

What is transaction malleability?

The ability of a transaction to have many valid txids is known as transaction malleability. When a portion of a transaction is malleable, it allows for changes to be made after signing the transaction without invalidating the signature. A txid is a hash of a transaction; therefore, any modification to the transaction will also modify the txid. Only modifications that change the txid but do not invalidate the signature raise worries about malleability. In contrast, modifications that change the txid but do not invalidate the signature are not a worry.

Advantages of SegWit

• Transaction malleability is no longer an issue. SegWit is a straightforward and innovative solution to a significant issue with the Bitcoin protocol.

• Faster Bitcoin transactions. The Bitcoin blockchain is made lighter by SegWit. It enables the processing of additional transactions without growing the size of the Bitcoin blockchain as a whole.

• Cheaper Bitcoin transactions. Lower transaction fees result from faster transactions. The Bitcoin community should support any measures that reduce transaction costs because they can be extremely costly.

• Possible brand-new and intriguing breakthroughs. Bitcoin must find a solution to the scalability issue if it is to be useful to a network of millions of users. Scalability initiatives like the lightning network are made possible with the use of SegWit.

Disadvantages of SegWit

• Not enough nodes are using it. Numerous miners dislike SegWit. Lower fees impact their profits, and they dislike having to support the witness-data sidechain because it generates no fee income. The SegWit improvements have also been sluggish to be supported by other Bitcoin services, such as wallets. Only 14% of Bitcoin transactions in February 2018, nearly six months after it was implemented, using SegWit Bitcoin. Although the numbers have increased since then, the network is still far from being fully modernized.

• It’s a temporary fix for a longstanding issue. Several Bitcoin developers say the SegWit protocol doesn’t go far enough to address the scalability issue. They assert that only significant adjustments to the size of the Bitcoin blockchain and the manner in which transactions are handled will enable the platform to scale in the future.

• The Bitcoin community is divided as a result of SegWit. There have been several hard forks because of the SegWit controversy. Bitcoin Cash (BCH) is the most well-known of these.

Conclusion: Is SegWit a good idea?

Although the pros and cons of SegWit are still fiercely debated in the cryptocurrency industry, security improvements and faster transaction speeds are favorable for the blockchain, miners, and SegWit-accepting nodes. For example, Taproot, a modification to Bitcoin built atop SegWit that enables even faster validation, was made possible thanks to SegWit.

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.