If you are a newbie in the world of blockchain, Bitcoin, and cryptocurrency, Segwit probably sounds to you the same as a segway. However, if you have already heard about Segwit or started delving into the bitcoin network topics, this article may be a consistent upgrade of your knowledge. To put it shortly, Segwit is a fresh upgrade to the Bitcoin network adopted and massively promoted since August 2017 thanks to the bitcoin developer Pieter Wuille. Here today, we will learn in more detail what Segwit is, why you should try it no matter how experienced in cryptocurrency you are and how Segwit will foster Bitcoin’s future mass adoption.
Anyway, what is Segwit/ Segregated Witness (explained shortly)?
Segwit, which is an acronym for Segregated Witness, is a Bitcoin network‘s new upgrade protocol that detaches (since “segregate” means to separate) the digital signature (also known as “the witness”) from the transaction and works efficiently on several issues at once dealing with several Bitcoin’s flaws. As a result, this bitcoin network enhancement boosts the overall transaction process to fit within a 1Mb block and changes the transaction data. The idea of Segwit was launched during the Scaling Bitcoin conference in 2015 by the bitcoin developer Pieter Wuille, and Segregated Witness keeps getting more and more popular since then.
If such a brief explanation does not clear things up, keep on reading. You’ll find out much more – today. We’ll cover the following topics: why is Segregated Witness or Segwit called a promising protocol upgrade, its assets and features, what Segwit does, and how Segwit works as a Block Size Booster and a Soft Fork, how to calculate Block Weight and optimize the process with the help of Segwit, a brief comparison between Segwit and Legacy, and so on.
At the end of the article, we’ve included the frequently asked questions section to dot the I’s on the most common inquiries.
What Is Segwit And What Does It Do?
1. A Bitcoin Upgrade Built to Last
Introduced at the Scaling Bitcoin conference in 2015, Segwit, or Segregated Witness, is a protocol upgrade to the Bitcoin network meant to increase Bitcoin’s scalability, efficiency, compliance, and foster its mass adoption as the largest cryptocurrency. Since the capacity of a block is limited to 1 Mb. Thus Bitcoin block is able to perform only about 2700 transactions on average (making users wait in a virtual queue to send bitcoin currency), optimizing it was the advantageous solution.
2. Tackling Bitcoin’s Scalability Problem
To start with, Bitcoin transactions are written on an immutable ledger which is called the Blockchain. The bitcoin blockchain is called so simply because the transactions are nested together into interchained links – blocks whose features depend on their sequence and order. A blockchaingathers information together in specific units, also known as blocks, that hold sets of information in the overall blockchain. The problem is, these blocks of transactions have a restricted capacity of about 1Mb, and consequently, a Bitcoin block is able to process on average around 2700 transactions which is not the most efficient outcome (as many people trying to send Bitcoin cash have to wait in this transaction queue to enter the blockchain, just as during price rallies). Compared to Visa, which is capable of processing about 1,700 transactions per second, Bitcoin can handle the average 5, hence the transaction scalability issue. To make the recent update applied worldwide and place the load off the node operators, Bitcoin developers had to deal with its limited transaction capacity. This way, more transactions could be possible since 2017 thanks to the invention of Segwit and its activation on August 23, 2017. Now Segwit is here to remove the witness or ‘signature’ data from the input field and boost the overall scalability.
3. Dealing With Bitcoin Transaction Malleability Bug
The next issue Segwit fixed successfully is transaction malleability. Here is how it works: each Bitcoin transaction comprises 3 parts: the sender (also called the input which contains the sender’s public address), the one who receives it (also known as the output which contains the receiver’s public address), and a digital signature confirming the sender’s eligibility to send the coins to the public address of the buyer.
The matter is that Bitcoin’s code allows the digital signature to be changed when a transaction is yet invalidated, which is an issue, as well: in case you start a mathematical check on it, it will be claimed valid by the network, but if you start a hashing algorithm, it would have a different outcome. It could come clearer with the following example: let’s assume the signature value was “5,” but we altered it to “5+6-6” or wrote it like “05”. This could count as the same value mathematically (so it could be a confirmed signature), but if we hashed these different versions, we would not come to the same results as hashing hinges on the way you note or describe the value rather than the value itself.
Therefore, since the hash is the factor that identifies the transaction signatures in the bitcoin blockchain, we could alter any transaction id to another id, and it would still be confirmed. The whole process would turn out to be more efficient, and more transactions would be processed.
However, developing a new transaction id for bitcoin transactions that already exist may not be that easy due to several reasons:
- first, in case we wished to create second-layer solutions on top of the Bitcoin network (similar to the Lightning Network), we would have to ascertain the initial first layer is not changed by anyone else as it relays on the first layer;
- moreover, Tx ids could lead to some problems if we were accepting or spending any unconfirmed funds.
4. Other transaction issues
The transaction malleability issues concerning processing the transaction data are better explained using this casual example based on a standard bitcoin transaction: let’s assume Ann paid Sam in an unconfirmed transaction (let’s call it transaction A). Sam took this invalidated payment to buy a product online from Mark (let’s call it transaction B). Still, Mark did not have time to wait for transaction ratification B and transferred the product to Sam beforehand. Next, Sam deliberately forged Ann’s payment with the help of several technical tricks so that her transaction was validated with another third. This way, transaction B is now inoperative as it was based on the authentic third of transaction A that stopped to exist. So this way, transaction data was not processed properly: Mark, in fact, has not been paid although already transferred the product to Sam. From this example, the bitcoin cash and signature data, transaction ids, and flexibility issues are more than evident, and the Segwit address would prevent them from happening.
Some Extra Issues Segwit Handles
1. Bringing More Transactions To The Blockchain
While providing more transactions by removing the signature data from the transaction input and tackling the malleability issue at an increased transaction speed, Segwit can actually handle a number of other technical blockchain problems which might not be felt by its users at first glance but which definitely deserve mentioning in our article.
2. Bitcoin Transactions Optimized
What other problems does Segwit address? If you want to learn more about Segwit/Segregated Witness-related features, here’s a concise yet thorough list of the issues Segwit is capable of addressing, apart from boosting bitcoin cash operations:
- The signing of input values;
- Linear scaling of sig hash operations;
- Lowering UTXO growth;
- Improving efficiency without validating signatures;
- Enhanced security for multisig via pay-to-script-hash (P2SH);
- Script versioning;
- Transaction speed boosted, and block size limit increased in the blockchain;
- Proceeding towards a single combined block limit;
- Block capacity/size expansion.
For those wishing to get a more detailed and comprehensive explanation of the above-mentioned features of the Segwit address, signature data, optimized transaction fees, and so on, we advise following this link.
How Segwit Works
Segwit As a New Block Size Booster
Segregated Witness is a suggested advance to the way the blocks are structured. You may say there are also non-Segwit blocks, called legacy blocks owing a space of nearly 1Mb for all of the block transaction data, which comprises inputs, outputs, signatures, and other factors. Nevertheless, Segwit blocks are a block size enhancement as their volumes are bigger, reaching up to 4Mb, and they consist of two main components: an extended block as well as a base transaction block. It turns out Segwit brings a consistent increase in block size similar to Bitcoin Cash.
Segwit blocks act the way that the digital data, including the transaction signatures (the transaction signature data also known as “the witness”), is transmitted outside of the base transaction block to be stored inside the extended transaction block while still being in the process of transfer.
The base transaction block, in turn, comprises and keeps the data information about the sender and the receiver so that the witness data is left blank and thus doesn’t require any room. Consequently, more transactions are furnished inside the block with a 1Mb capacity.
Besides, the extended block with the extra 3 Mb features the whole load of witness information that isn’t a compulsory component in the base transaction block.
Segwit Aims
What are the aims of such a diverse approach to block formatting provided by Segwit? Basically, there are two crucial points it addresses:
- Firstly, as we have already shown, the digital signature is transferred outside of the base transaction block. This means the transaction id is secured and will not be affected in the event when a person alters the signature on the transaction. Isn’t it an efficient way to deal with the common above-mentioned affability problem?
- Once again: this principle allows for truncating the underlying transaction data. As the witness data may require up to 65% of the transaction volume, transferring it outside the base transaction block allows more transactions to be processed inside a 1MB block.
Segwit Is a Soft Fork
Since the bottom line is, Segwit is and acts as the block size enhancement, why not enlarge the block volume, for instance, up to 4Mb, one might ask? The matter is, there’s a risk of developing hard forks in Bitcoin’s blockchain network, and the Segwit developers strived to prevent hard forks with “soft forks.” Bitcoin cash was developed as a result of those hard forks in the bitcoin blockchain, and Segwit acts as a soft fork in this process of the transaction.
As claimed in Bitcoin’s protocol, its blocks can’t surpass the 1Mb block – the reason why IT developers had to seek an alternative way to make it acceptable by Legacy blocks, as well as the Segwit ones, and this advantageous “combo” of a 1MB block with an “expansion” of another 3Mb became the solution, sufficient for the existing protocol.
Contrary to Legacy nodes which are capable of taking only the 1Mb base transaction block with no extended block while still counting them as valid, Segwit nodes are theoretically capable of receiving the total amount of nearly 4 Mb (which comprises the base and extended block) while conforming the transactions in full. It is worth mentioning, though, that in practice, the average block volume to comprise Segwit transaction is mostly about 2Mb.
Such backward compatibility is called a “soft” type of fork, which was activated on the Bitcoin network in August 2017. This attitude is beneficial since it allows for an increase in security. It does not need nodes to update their software to sustain the work of Segwit – this way; the network remains in action even if updating all nodes would require months or years.
Estimating Block Weight in Segwit
Size is the measurement for Legacy blocks, and weight is the appropriate characteristic of Segwit blocks. Being a fresh and advanced idea, calculating the block weight on a per-transaction basis was first introduced in Segwit. Here’s how it is done: the weight of every transaction is calculated by the following formula:
Base Tx size *3 + Full Tx size.
If we compare this to Legacy transactions, they are not able to delete witness data. Hence their weight will permanently be 4 times the tx size (for instance, take a legacy TX of 2000 bytes, and it will have a weight of 2000 * 3 + 2000 = 8000).
The matter is that Segwit transaction weighs, in turn, will be consistently less than this characteristic that we have just calculated. Let’s give an example: 1400 bytes for one transaction with Segwit, which consists of 200 bytes of witness data, will turn out to weigh only 5000 (according to the formula: (1400-200)*3 + 1400 = 5000).
A small conclusion straightaway is, the size of the witness data is directly connected to the tx weight: the larger the size of the data, the lighter, the tx weight. This is one of the factors which encouraged the crypto miners to refer to lighter Segwit transactions rather than more overloaded ones since those first are capable of fitting much more data per one block.
Legacy And Segwit
Today, the majority of Bitcoin-related transaction processes mined are the Segwit ones – this fact surely speaks in favor of this technology (the actual percentage is around 70%). And now let’s proceed to the further comparison between the Legacy transactions and Segwit ones – here are some differences:
- The maximum block size of a legacy transaction is 1Mb, while the Segwit transaction owns up to a 4Mb block size. Here’s an example for a Segwit block item that exceeds 2Mb.
- Legacy transactions tend to encounter malleability cases and own increased network transaction throughput.
- Legacy transactions have a bigger size and thus entail paying a bigger network transaction fee required for faster confirmation.
- Segwit addresses begin with a “3,” and legacy ones begin with a “1”.
Top 5 Segwit Wallets
There is a reason why more and more crypto wallets support Segwit – there are several advantages in this update we have already outlined. And below, you will find several Segwit wallets and related bitcoin platform options of proven quality. Among them there are Ledger, Trezor (which are hardware wallets), Exodus, and Electrum (both are software wallets), as well as multi-purpose Coinomi. While the first two of those wallets support both desktop and mobile platforms, Exodus and Electrum are meant for desktops only.
A small tip for those wishing to try transferring from Legacy to Segwit wallet: make sure you develop a brand new Segwit wallet first and proceed to transmit all of your funds to this new address since you cannot simply upgrade the already existing crypto wallet.
1. Ledger
Ledger is a hardware type of wallet – this means you can easily sign transactions offline, not worrying about your security. Besides, your personal key is private and does not have Internet access. We would recommend choosing between two core models – the Ledger Nano S and the Ledger Nano X since these two items are of proven quality and support Legacy transactions as well as Segwit ones.
However, the Nano X is a hip thing in today’s market. It can deal with a greater number of cryptocurrencies compared to the Nano S model, not to mention its mobile compatibility.
2. Exodus
We would definitely recommend trying Exodus for those who take their first steps in crypto mining. Exodus is a free software bitcoin wallet with a clear, intuitive design.
This bitcoin wallet is capable of handling more than 100 crypto assets and processing both Legacy transactions and Segwit ones. It is also designed in two versions – for desktop and cell phones. Want to learn more about Exodus ?- You are welcome to get acquainted with the detailed review via this link.
3. TREZOR
TREZOR is another brand among the most widespread and renowned hardware wallets. The two TREZOR models we offer checking out are the TREZOR One, and TREZOR Model T -these two can handle Segwit as well as Legacy transactions, though the TREZOR Model T is the newer one supplied by a touchscreen.
4. Electrum
We included Electrum in our list without a thought, although it might seem a bit hard to comprehend for newbies. Nevertheless, it has its own range of advantageous features that would be interesting to learn for more skilled crypto miners. First, it is an open-source Bitcoin-only wallet designed in a desktop version; it can deal with Legacy as well as Segwit transactions; it boasts an impressive range of fee managing options, transaction signing capacities, and fund administering features. To know what are the exact strong sides of this Bitcoin wallet, refer to the review here.
5. Coinomi
We have included in our review Coinomi, as well, although it slightly differs from the above-mentioned Bitcoin wallets. The first thing you need to know about Coinomi is that practically, it is more of a multi-currency comprehensive Bitcoin platform wallet that can handle up to 1,170 crypto assets and is presented in both desktop and mobile versions. Similar to the abovementioned brands, Coinomi supports both legacy and Segwit transactions, so, in case you’re seeking a mobile Segwit wallet to try, look no further. All key details about Coinomi are already outlined in the review through this link.
Now, before drawing up some conclusions, let’s clear up several possible questions our readers might still have and explain the rest of the terms they could come across when reading our article.
- The Lightning Network is…
The Lightning Network is a second layer over the Bitcoin network. The Lightning Network makes it possible to transmit Bitcoin cash between them for free and in a blink of an eye (no fees are charged). You may find further details on the Lightning Network by following the link above.
- SegWit2x is…
Segwit2x was developed as a compromising blockchain response to the major block size controversies that took place in 2017 (“The New York Agreement”). Its mechanism supposes that Segwit’s activation is the primary step. After that, the increase in the block size up to 2Mb is made (however, such an idea was supported by a small group and rejected by most bitcoin mining pools).
- Segwit: is it backward compatible?
Yes, as we have already mentioned in the article, Segwit is backward compatible against the hard fork and even deals with Legacy transaction processes where Segwit itself has not been enabled.
Summing It All Up
Segwit is not only new and expedient development in the area of blockchain and cryptocurrency but so far the most important step to enhancing transaction speed and thus scaling Bitcoin for mass adoption, and solid basis for implementing further transaction optimization, including the Lightning Network and many others yet to come.
Separating the digital signature or witness from the transaction block offers a huge number of benefits, including more compact transaction sizes, the ability to process transactions at the best transaction speed, flexibility fixes, and better confirmation options, the so-called “backward compatibility” against the hard fork, and others. Bitcoin transactions between various addresses, such as Legacy, SegWit, Native SegWit, and others, are now fully compatible. The tendency is, since they are now fully compatible, and more Bitcoin wallets apply Segwit, it has all the chances to become the classic option for almost every Bitcoin-related transaction in the world of blockchain.
What are your personal experiences with Segwit, if any? What Bitcoin wallets do you prefer? Share your thoughts and impressions on Segwit and Bitcoin wallets in the comments section below.
FAQs:
What is The SegWit Address/Account?
SegWit (Segregated Witness), also referred to as Wrapped or Nested SegWit, is a recent and beneficial software upgrade in the bitcoin community that separates certain data of the transaction signature from the transaction and reduces the size of each transaction’s data allowing for faster transactions at an upgraded transaction speed since Segwit partly fixed the malleability bug in the bitcoin transaction process. Besides, by making bitcoin transactions lighter in size, more transactions are able to fit into one Bitcoin block at a more cost-efficient transaction fee.SegWit or nested SegWit addresses (P2SH) are multi-purpose addresses that can work with non-SegWit and native SegWit transaction deals. And as Segwit, native Segwit, and nested Segwit address is compatible with many other bitcoin addresses (among them are Legacy, the Segwit itself, Native Segwit, and more) and provides secure payment channels, faster transactions can be safely sent to a huge number of external Bitcoin addresses.
Should I Use SegWit?
It’s up to you to decide, but Segwit, as a fresh protocol upgrade, is gaining mass popularity in the blockchain community and overall crypto world. It is definitely worth trying thanks to its increased block size limit, backward compatibility, advanced approach to Bitcoin transaction signatures, and solving Bitcoin transaction malleability bug, compatibility with a large number of addresses (including Legacy, Native Segwit, and so on), lower fees, faster Bitcoin transactions, and so on.
Should I Use SegWit or Legacy?
Apparently, it’s a matter of personal choice. Still, Segregated Witness, or Segwit, is the newer address format with an upgraded block size limit, lower transaction fees, and tangible improvements in the size (required to keep transactions in a block). In contrast, Legacy’s address remains the original BTC address. Browse through our article to find out further differences between Bitcoin and Legacy.
Does It Make a Difference Where I Hold My Bitcoins?
There are various types of digital Bitcoin wallets – hardware-based and web-based. The Bitcoin wallet may be designed for a cell phone or a computer desktop. There are opinions stating that hardware wallets aren’t perfect if meant to process Bitcoin transactions on a regular basis and are better for long-term storage instead. Offline storage is said to be more secure and hacker-proof. Additional security can be ensured by printing the private keys and addresses for access on paper and keeping them safe. Refer to our article or external sources to find out the top bitcoin wallets on today’s market to buy at lower fees and store your bitcoin cash securely ever since.
