Bitcoin Segregated Witness, commonly referred to as SegWit, is a protocol upgrade that was first implemented on the Bitcoin network in 2017. It was developed as a solution to a number of issues facing the Bitcoin network, including scalability, transaction malleability, and the block size limit. In this article, we will explain how SegWit works and the various benefits it brings to the Bitcoin network.

What is SegWit?

SegWit is a protocol upgrade that was first proposed by Bitcoin developer Pieter Wuille in 2015. It was implemented on the Bitcoin network in August 2017 as a soft fork, meaning that it was backward-compatible with previous versions of the Bitcoin software. SegWit stands for Segregated Witness, and it refers to the separation of the witness data from the transaction data in a Bitcoin block.

In Bitcoin, every transaction is added to the blockchain in the form of a block. Each block contains a list of transactions, as well as a number of other pieces of data, including a nonce (a random number used to generate the block’s hash), the previous block’s hash, and the witness data. The witness data, also known as the signature data, is used to verify the authenticity of the transactions in the block.

Before SegWit, the witness data was included in the same data structure as the transaction data. This meant that any changes to the witness data, such as a change to a transaction’s signature, would result in the block’s hash being changed. This is known as transaction malleability, and it can be exploited by attackers to prevent transactions from being confirmed.

SegWit solves this issue by separating the witness data from the transaction data and storing it in a separate structure called a witness block. This means that changes to the witness data will no longer affect the block’s hash, which makes it much more difficult for attackers to manipulate transactions.

Benefits of SegWit

There are several benefits to the implementation of SegWit on the Bitcoin network. Some of the most notable benefits include:

  1. Increased scalability: One of the main issues facing the Bitcoin network is scalability. As more people use Bitcoin, the number of transactions being processed by the network increases, which can lead to delays in transaction confirmation times and higher fees. SegWit helps to address these issues by allowing more transactions to be included in each block.

Before SegWit, the maximum block size on the Bitcoin network was 1 MB. This meant that only a limited number of transactions could be processed by the network at any given time. With SegWit, the maximum block size is increased to around 4 MB, which allows for more transactions to be processed in each block. This results in faster confirmation times and lower fees for users.

  1. Reduced transaction fees: As mentioned above, SegWit can help to reduce transaction fees for users. This is because it allows more transactions to be processed in each block, which means that there is less competition for block space. With less competition, the fees required to have a transaction included in a block are lower.
  2. Improved security: SegWit helps to improve the security of the Bitcoin network by addressing the issue of transaction malleability. As mentioned earlier, transaction malleability can be exploited by attackers to prevent transactions from being confirmed. By separating the witness data from the transaction data, SegWit makes it much more difficult for attackers to manipulate transactions.
  3. Enhanced privacy: In addition to the benefits mentioned above, SegWit also brings enhanced privacy to the Bitcoin network. This is because it allows for the creation of multi-signature transactions, also known as Pay to Witness Public.