Activated on August 24, 2017, Segregated Witness (SegWit) stands as a soft fork upgrade to the Bitcoin network. SegWit changes the way that Bitcoin transactions are stored on the blockchain, by separating the digital mark from the transaction information.
What is SegWit?
SegWit stands for Segregated Witness. It is a change to the way that Bitcoin transactions are stored on the blockchain. In a traditional Bitcoin transaction, the signature data is stored together with the transaction data.
SegWit separates the virtual mark from the transaction data and stores it in a separate “witness” field. This allows for more transactions to fit in a block, which can help to reduce transaction fees and improve scalability.
What does SegWit do?
SegWit has several benefits for the Bitcoin network, including:
- Increased scalability: SegWit allows for more transactions to fit in a block, which can help to reduce transaction fees and improve the scalability of the network.
- Improved efficiency: SegWit can improve the efficiency of the Bitcoin network by reducing the amount of data that needs to be processed by nodes.
- Security: SegWit does not introduce any new security risks to the Bitcoin network.
Biggest goals of SegWit
The biggest goals are to:
- Increase the capacity of the Bitcoin blockchain.
- Reduce transaction fees.
- Improve the efficiency of the Bitcoin network.
- Improve the security of the Bitcoin network.
Should you use SegWit?
If you are sending or receiving Bitcoin, you should use a SegWit address. A SegWit address offers several advantages over a legacy address including:
Lower transaction fees
SegWit reduces the size of Bitcoin transactions by moving the digital mark to a separate “witness” field. This allows for more transactions to fit in a block, which can help to reduce exchange fees.
In the world of crypto, exchange fees are a major pain point for users. They can be high, and they can vary depending on the system’s congestion. SegWit can help to reduce exchange fees by making it possible to fit more transactions in a block. This is because the virtual mark is no longer stored in the main body of the transaction, and can be processed separately.
Increased speed of transaction validation
SegWit can also increase the speed of transaction validation by reducing the amount of information that needs to be processed by nodes. This is because the personal virtual mark is no longer stored in the main body of the transaction, and can be processed separately.
The validation of a Bitcoin transaction is a computationally expensive process. It involves verifying the authenticity of the transaction and ensuring that it complies with the rules of the Bitcoin protocol. The digital signature is one of the most important pieces of information that needs to be verified during the validation process.
By moving the signature information to a separate field, SegWit allows nodes to validate transactions more quickly. This is because the signature can be processed separately from the rest of the transaction, which can free up resources on the node and allow it to process more transactions per second.
Increased adoption
SegWit has increased the adoption of Bitcoin by making it easier for businesses and users to accept Bitcoin payments. This is because SegWits are more efficient and secure than legacy formats, and can be used by a wider range of wallets and exchanges.
How does SegWit work?
Native SegWit addresses use a new format for storing signature information. For legacy formats, the digital mark is stored together with the transaction information. In native SegWit format, the virtual mark is stored in a separate field, called the “witness” field. This allows for more transactions to fit in a block, which can help to reduce exchange fees.
Pros and cons of Native SegWit
Pros
- Native SegWits are more efficient than legacy formats. This is because the signature is stored in a separate field, which frees up space in the transaction information.
- Native SegWit formats are more secure than Legacy formats. This is because the signature data is stored in a separate field, which makes it more difficult to attack.
- SegWit addresses are supported by a growing number of wallets and exchanges.
Cons
- SegWit formats are not as widely supported as legacy addresses. This is because they are a newer technology.
- Native SegWit formats are slightly more difficult to type than legacy formats. This is due to their utilization of a distinct address structure.
Address format
Native SegWit formats start with the prefix “bc1”. For example, a sample native SegWit address is bc1qar0srrr7xfkvy5l643lydnw9re59gtzzwf5mdq.
On the other site, Legacy addresses start with the prefix “1” or “3”. For example, a sample legacy address is 1M57kCjB20u363Xe79475k23p23456789.
Segwit vs Legacy
There are two types of Bitcoin addresses: Legacy and SegWit addresses. A Legacy address is a traditional format that has been used for Bitcoin transactions since the beginning.
A Segwit address has a few advantages over a legacy address, including:
- Can hold more data.
- They can be used to send and receive SegWit transactions.
- They are more secure.
Address Structure and Format
Legacy Address
Legacy addresses are the original Bitcoin formats and start with a “1.” They represent the conventional address format used in the early days of Bitcoin.
SegWit Bech32 Address
SegWit Bech32 formats are the modern representation of addresses, starting with “bc1.” They utilize the Bech32 encoding to offer a more streamlined and error-resistant structure.
Signatures and Witness Data
Legacy Address
Legacy addresses include the virtual signatures along with the public key in the transaction information, which occupies space and contributes to larger transaction sizes.
SegWit Bech32 Address
SegWit separates the virtual signatures, also known as the witness data, from the transaction information. This reduces the transaction size and supports more efficient digital mark storage.
Transaction Time and Confirmation
Legacy Address
Transactions from legacy formats require more information to be processed and verified, potentially leading to longer confirmation times during periods of high network congestion.
SegWit Bech32 Address
SegWit transactions tend to have faster confirmation times due to their smaller size, allowing them to be included in blocks more swiftly.
Blockchain Support and Adoption
Legacy Address
Legacy addresses are supported by all Bitcoin wallets and exchanges due to their historical significance and continued usage.
SegWit Bech32 Address
While SegWit formats offer significant advantages, their adoption varies across wallets and services. However, more providers are adopting them to leverage the benefits they bring.
Digital Signature Security
Legacy Address
Legacy transactions include digital signatures in the transaction information, potentially exposing them to certain vulnerabilities and risks.
SegWit Bech32 Address
With SegWit, virtual signatures are kept separate from transaction information, reducing the attack surface and enhancing the overall security of transactions.
In summary, SegWit addresses offer a more efficient and secure way to transact on the Bitcoin network. They optimize transaction sizes, reduce fees, enhance security by isolating witness data, and potentially speed up confirmations. Legacy addresses, on the other hand, are still widely supported and compatible, making them suitable for various scenarios
P2SH
Pay-to-Script-Hash (P2SH) is a Bitcoin address format that allows for more complex transactions than the traditional Pay-to-Public-Key-Hash (P2PKH) format. P2SH starts with the prefix “3”.
For example, the SegWit upgrade to the Bitcoin network uses P2SH to store the virtual mark information for SegWit transactions.
Here is a sample P2SH address:
3QsM4DtK72n58hDq4Z94114sv4y6t39c5S
This address is a multisig wallet that requires three signatures to spend funds. The Bitcoin community has been very supportive of the P2SH format. They have seen the benefits of P2SH addresses, such as their ability to support multisig wallets and new features on the Bitcoin network. As a result, P2SH formats have become increasingly popular in the Bitcoin community.