Segregated Witness, or SegWit, is the process by which the block size limit on a blockchain is increased by removing signature data from transactions that are included in each block. When certain parts of a transaction are removed, this frees up space or capacity to add more transactions to the chain.
Segregate means to separate, and witnesses are the transaction signatures. Hence, segregated witness, in short, means to separate transaction signatures.
Block size limit
Bitcoin is a cryptocurrency, a form of money using cryptography to keep transactions secure.
Each record of a unit of bitcoins is called a "block", and all blocks are tied together sequentially by using a cryptographic hash on the previous block and storing its output in the next. This forms a chain of blocks, or a blockchain.[unreliable source?]
Each block contains information about who sends and receives a given unit of bitcoin (a transaction), as well as the signature that approves each transaction. Originally, there was no limit to the size of blocks. However, this allowed malicious actors to make up fake "block" data that was very long as a form of denial-of-service attack (DoS attack). These fake blocks would be detected, but doing so would take a very long time, slowing down the whole system.
Scalability and malleability
The current bitcoin blockchain design is regarded as having two shortcomings.
A new block is added to the chain at random intervals averaging, by design, ten minutes (proof-of-work causes this delay). Together with the limit on block-size, this limits the number of transactions that can be processed in a given time. Some sites work around this problem using "off-chain payments" conducting transactions without writing them to the blockchain, which involves various trade offs regarding trust and transaction finality.
Others have proposed changes to bitcoin that would reform the blockchain format in a backward-incompatible way. For example, FlexTrans (Flexible Transactions) would make transactions smaller by changing how they are described to a "tag" system, allowing more transactions per block. This is not compatible with systems that do not upgrade.
Segregated Witnesses as a solution
The signature data called the witness would be separated from the Merkle tree record of who is sending or receiving the bitcoins. The witness data is moved to the end, and each byte of it would only count as one quarter of a "unit".
It also addresses signature malleability, by serializing signatures separately from the rest of the transaction data, so that the transaction ID is no longer malleable.
On 21 July 2017, bitcoin miners locked-in a software upgrade referred to as Bitcoin Improvement Proposal (BIP) 91, meaning that the Segregated Witness upgrade activated at block 477,120.
SegWit alleviates the scaling problem in two ways:
- SegWit solves Transaction Malleability, thereby enabling the Lightning Network, an overlay network of micropayment channels, hypothetically resolving the scaling problem by enabling virtually unlimited numbers of instant, low-fee transactions to occur "off chain".
By 8 August, another milestone was reached when 100% of the bitcoin mining pools signaled support for SegWit, although SegWit would not be fully activated until 21 August at the earliest, after which miners would begin rejecting blocks that do not support SegWit.
Initially, most bitcoin transactions were not able to use the upgrade.
Segregated Witness was activated on 24 August 2017. The bitcoin price rose almost 50% in the week following SegWit's activation. On 21 July 2017, bitcoin was trading at $2,748, up 52% from 14 July 2017's $1,835.
In the first week of October, the proportion of network transactions using SegWit rose from 7% to 10%, indicating an increase in use rate.
As of February 2018, SegWit transactions exceed 30%.
- BIP141 Segregated Witness (Consensus layer) – activated on 24 August 2017
- BIP143 Transaction Signature Verification for Version 0 Witness Program  – activated on 24 August 2017
- BIP144 Segregated Witness (Peer Services) – activated on 24 August 2017
- BIP148 Mandatory activation of segwit deployment – activated (mandated the activation of BIP141, 143, 144)
- "SegWit (Segregated Witness)". Investopedia. Retrieved 2021-10-01.
- How the Bitcoin protocol actually works
- Segregated Witness proposal BIP 141
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