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What is Segregated Witness (SegWit)?
General Wallet Use
SegWit, or segregated witness, is a Bitcoin network upgrade that removes transaction witness data from the main block, solving technical issues like transaction malleability and making the network more efficient. Here’s what that means.
What is SegWit?
On Bitcoin, witness data is the part of a blockchain transaction that proves the transaction’s authenticity. Originally, this data was stored in one place within the block. However, this model caused efficiency and scalability issues on the network.
The SegWit upgrade, short for segregated witness, moves witness data to a separate structure in the block—a portion accounting for smaller weight in the block. Fully upgraded SegWit nodes can see all of the data on the block, but partial nodes can download the ledger without the witness data. This makes transactions faster and more efficient without increasing the block size limit or congesting the network.
Transaction malleability was a problem prior to SegWit, where small changes to the witness data could alter or create a new transaction ID, even if it was confirmed. This could potentially disrupt the network and compromise security. Removing the witness data addressed this by moving the part of a transaction that determines its ID.
The Benefits of Segregated Witness in Blockchain
An important benefit of SegWit is it optimizes block space, achieving a similar effect as increasing the blocksize without actually doing so.
The Bitcoin network’s block size limit remains at 1MB, but SegWit more efficiently fits transactions into a block by segmenting off the witness data.
By reducing the size of transactions, SegWit facilitates lower transaction fees.
Before SegWit, fees were high and getting a transaction processed quickly was very expensive.
SegWit reduces transaction size, allowing more transactions in each block, speeding up the network and lower fees overall.
SegWit also paved the way for future improvements like the Lightning Network—a layer-2 solution that enables faster and cheaper transactions.
The Adoption of SegWit
When SegWit was first proposed, it received mixed reactions from the Bitcoin community. Some were excited about its potential to improve the network, while others were skeptical about implementing new and potentially dangerous changes. Despite these initial hesitations, SegWit was successfully activated on the Bitcoin network in August 2017, following a long period of debate and testing.
Like any major change, SegWit faced its share of challenges and criticisms. Some members of the community were concerned about the complexity of the upgrade and the potential risks it introduced. Others believed that increasing the block size limit would have been a simpler solution. However, SegWit’s successful implementation has largely addressed these concerns over time.
How to Use SegWit
To start using SegWit, you’ll need to generate a SegWit address and understand how to conduct transactions. Here’s a more detailed guide to help you through the process.
Creating a SegWit Address
Choose a SegWit-Compatible Wallet: First, make sure you’re using a Bitcoin wallet that supports SegWit. Most popular wallets offer SegWit addresses. If you're unsure whether your wallet supports SegWit, check the wallet's documentation or settings.
Set Up or Access Your Wallet: If you already have a Bitcoin wallet, open it and navigate to the section where you manage addresses. If you’re setting up a new wallet, follow the usual process for wallet creation—choosing security features like a strong password and backing up your recovery phrase.
Generate a SegWit Address: In your wallet’s address management section, look for an option to create a new address. You might see options like "Legacy," "SegWit," or "Native SegWit" (sometimes labeled as "Bech32"). Select the SegWit or Native SegWit option. Native SegWit addresses (Bech32) start with “bc1” and are more efficient, but both types offer the benefits of SegWit.
Label and Use Your SegWit Address: Once generated, you can label your new SegWit address within the wallet for easy identification. You’re now ready to use this address for sending and receiving Bitcoin transactions.
Sending and Receiving Transactions with SegWit
Receiving Bitcoin: When someone sends you Bitcoin, give them your SegWit address. The process of receiving Bitcoin doesn’t change much, but using a SegWit address can reduce transaction fees for the sender.
Sending Bitcoin: To send Bitcoin using SegWit, enter the recipient’s Bitcoin address as usual. Your wallet should automatically optimize the transaction for SegWit, which means the transaction size will be smaller, leading to lower fees.
Transaction Confirmation: Your transaction might confirm faster than non-SegWit transactions, especially during periods of high network congestion. You can track the status of your transaction using your wallet or a blockchain explorer
Segwit vs. Legacy
A legacy Bitcoin address is one that was created before the SegWit upgrade. These addresses are still usable, but have downsides. There are two types of SegWit addresses:
P2WPKH (Bech32) are native SegWit addresses starting with bc1.
P2SH are backward-compatible SegWit addresses starting with 3.
Benefits of Using SegWit for Everyday Transactions
Using SegWit offers several practical benefits that can make day-to-day Bitcoin transactions smoother and more cost-effective:
Transaction sizes are smaller, generating lower network fees—especially beneficial if you’re making frequent small transactions.
More transactions can fit into each block, increasing the likelihood your transaction will be confirmed in the next available block.
Shorter wait times during high network congestion.
Transactions are more secure since they are less prone to certain types of attacks and errors.
Enables L2s.
By adopting SegWit now, you’re positioning yourself to easily take advantage of these innovations as they become more widely used.