SegWit Activated – The Birth of a Better Bitcoin

At last, a few hours ago the Segregated Witness, or SegWit, has finally been implemented. SegWit is the term used to mark a soft fork modification of the bitcoin transaction format on the blockchain. SegWit implements the Bitcoin Improvement Proposals (BIP141). It is planned to mitigate the block size limitation problem which reduces the speed of confirmation of transactions.

What Is SegWit All About?

In simple terms, SegWit shrinks the space needed for each transaction per block. This is accomplished by splitting each transaction’s data into two portions, removing the “witness” data, i.e. the unlocking signature, from the original part and appending it separately at the end. The original portion would continue to include the data of both the sender and the receiver, while the newly formed “witness” portion would include signatures and scripts. The original data portion would occupy the same size on a block, yet the “witness” portion would, accordingly, occupy 25% of its original space. SegWit is planned to be followed by a 2 MB hard fork, which marks the implementation of SegWit2x

The overall effect of SegWit is to modify the block’s average size from 1 MB to around 1.8 MB without having to modify the existing bitcoin protocol. It also improves the signature malleabiity, via excluding signatures from the transaction data, rendering it impossible to be modified. As such, the transaction ID won’t be malleable. This will render bitcoin safer with use with the lighting network, a solution to boost the speed of micropayments via bundling them and minimizing the amount of transaction data recorded onto the blockchain. This would be somehow risky if implemented in the presence of the malleability problem.

Now, we will have to wait and see if SegWit will really deliver what its developers claimed it can do. Will it lead to an increase in the throughput of confirmed transactions? Can we see a drop in transaction fees?  The community seems to be moving forwards along the SegWit plan, as at the time of writing, around 90%  of miners agree with the SegWit2x intention. In my opinion, the SegWit will deliver what its developers have promised and this will lead to an increase in bitcoin price during the last quarter of 2017. Who knows? We will have to wait and see.

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