What is SegWit? Understanding Its Working Mechanism and Merits & Demerits

SegWit stands for Segregated Witness. It refers to the change in the transaction format of Bitcoin where the witness information was removed from the input field of the block.

Understanding the definition of SegWit

Segregated Witness (SegWit) is a protocol proposed by Peter Wuille in 2015. Bitcoin implemented this protocol in August 2017. Peter Wuille proposed SegWit protocol to solve a transactional malleability, an attack wherein someone changes a TX ID before it is confirmed or validated by the network.

Even though the Bitcoin implemented this protocol, it also faced significant opposition that lead to a split of Bitcoin community. The main conflict was between the developer who wanted to make Bitcoin more affordable and more faster and the miners who wanted to make profits.

Also Read: Demystifying Cryptocurrency: A Brief Guide to Understanding and Impacts in the Future of Digital Currency

How does SegWit work?

First, lets know about the structure of Bitcoin transaction. Bitcoin transactions usually consist of two main components:

1. Transaction data: Transaction data includes the data about the amount sent by the user, addresses of sender and receiver, and other important information etc.
2. Witness data: Witness data includes the digital signatures that is required by the system to verify the validation of the transaction.

Before the use of SegWit, Bitcoin system was used to store the transaction data and witness data together inside a block. That limited the size of blocks and made the network vulnerable to transaction malleability.

From Malleable to Secure: The User Benefits of SegWit

SegWit solved the issue of transaction malleability by separating the transaction data into two parts:

• • Unsigned transaction data: This includes information like the sender’s address, the recipient’s address, and the amount being sent.
  • Witness data: This includes the digital signatures and any additional data needed to validate the transaction.

The witness data is placed in a separate data structure called a “witness script.” Only the unsigned transaction data is hashed to create a unique transaction ID (txid).

The signatures in the witness script now only sign the unsigned transaction data, not the entire transaction including the witness data.

How did SegWit help to solve the problem of Limited Block Size?

Traditionally, Bitcoin had a 1 MB block size limit. This limit had a merit which is to control the growth of blockchain and maintain decentralization, done by preventing miners from creating very large block that not every nodes can store and process it.

• As more people increased, the number of transactions also increased. 1 MB block size limit became challenging which lead to rising fees and transaction backlogs.
• SegWit introduced a new concept called block weight that replaces the raw block size as the primary measure for limiting the size of a block.
• Block weight considers both the size of the transaction data and the size of the witness data with different weightings.

Merits and Demerits of SegWit

• Merits of SegWit

  • It helps to increase the no. of transactions that can be process in a block.
  • It helps to enhance the security of transactions.
  • It helps to lower transaction fees due to the efficient of block space.

• Demerits

1. • In the beginning, it was slow and many services such as Bitcoin Wallets take more time to upgrade. Many services including Bitcoin Wallets did not support SegWit.
   • Any changes SegWit make can be complex in which the service providers and developers need to adjust.
   • It caused the division of Bitcoin community in which a group believes that, simply increasing the size of block size would be a good solution rather than implementing SegWit.

Please let us know about your opinion about the debate?