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Ryan Shea, the co-founder of Blockstack, describes Bitcoin Core’s Segregated Witness (Segwit) as a “Swiss army knife in terms of benefits.” Like the majority of the bitcoin community, Shea believes Segwit offers much more than transaction malleability and scalability fixes.

Segwit as a block size increase solution for on-chain capacity was proven to be efficient by respected researchers including Lightning network co-author Thaddeus Dryja. In January, Dryja discovered that Segwit could support up to 3.7 MB blocks when activated, increasing the on-chain capacity of bitcoin blocks by up to 3.7x.

Dryja wrote:

“I have a script that will spam testnet and make 3.7MB blocks. It’s not a 800KB regular block with txids and output scripts, and a 2.9MB witness block with just a bunch of signatures. It’s a single block, that looks pretty much the same as old blocks with a few extra requirements, that’s 3.7MB,” explained Dryja.

Additionally, Segwit’s ability to eliminate transaction malleability and provide an infrastructure for two-layer solutions such as Lightning grants further scalability on top of its on-chain capacity increase. In particular, Segwit enables solutions and technologies like Lightning, which allow bitcoin to operate as a cheap, reliable, secure and fast settlement network, rather than as digital gold.

In fact, Hal Finney, one of the early developers of Bitcoin who received the first bitcoin transaction from Bitcoin creator Satoshi Nakamoto, noted in 2010 that every single financial transaction on bitcoin can not be settled and included in the bitcoin blockchain. Finney reaffirmed the necessity of two layer solutions such as Lightning for optimal bitcoin scalability.

Finney said:

“Bitcoin itself cannot scale to have every single financial transaction in the world be broadcast to everyone and included in the block chain. There needs to be a secondary level of payment systems which is lighter weight and more efficient. Likewise, the time needed for Bitcoin transactions to finalize will be impractical for medium to large value purchases.”

Shea notes that there exists six additional benefits of activating Segwit on bitcoin. He noted that Segwit allows easier upgradeability by introducing versioning of the scripting language, improves the efficiency of signature-hashing, makes it safer for hardware wallets to sign transactions and reduces unspent transaction outputs.

The effect of Segwit on hardware wallets and their security measures is particularly important to consider. Leading hardware wallet manufacturer and development firm Trezor outlined a major security benefit of activating Segwit for users.

“SegWit transactions are designed in such a way that allows hardware wallets to get rid of the verification process altogether, because SegWit transactions will include the value of previous outputs in the signature of the transaction. The wallet thus does not need to request the previous transactions nor hash them anymore, saving precious time for users,’ Bach Nguyen of Trezor wrote.

The reduction of previous transaction verification time is beneficial to users as it strengthens the security measures of hardware wallet manufacturers. Less time spent and amount of operations completed by hardware wallets decreases the possibility of unexpected technical issues.

Featured image from Shutterstock.

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