Bitfinex and Coinbase, cryptocurrency exchanges from Hong Kong and San Francisco respectively, announced yesterday that they will now be accepting payments and withdrawals in Bitcoin from wallets updated with ‘segregated witness’.
Segregated witness, or SegWit, is an update of the Bitcoin blockchain. It enlarges the blocks which make up the chain, which allows for faster transactions speeds, lower transaction fees, and improved security.
It does this by separating signature and transaction data. All transactions in the blockchain are approved by a digital signature, and in the original chain these two sets of data are stored together, taking up a certain amount of storage space. By removing the signature code from the middle of the transaction data and storing it as an attachment at the end, the signature storage size is greatly reduced.
As a result of this upgrade, the 1 MB blocks that make up the Bitcoin blockchain effectively grow to a size of 1.8 MB. Larger blocks mean faster transaction times, because larger blocks support more activity.
Another advantage of this upgrade is security. Previously, signature security was flawed because the signature (known as ‘witness data’) didn’t cover all of the transaction data, meaning that there were several methods through which it was possible to alter the signature, leading to bitcoins being lost and stolen. This weakness is known as transaction malleability. Separating the signatures makes them clearer and unmalleable.
The SegWit upgrade was activated in August of 2017, but as of now only about 12% of Bitcoin transactions are utilising it. Bitfinex and Coinbase together handle well over half of the world’s Bitcoin trading volume, and so this figure is likely to grow significantly.
Bitfinex CTO Paolo Ardoino said: “By supporting SegWit addresses, Bitfinex is tackling three of the biggest crypto-enthusiast concerns: transaction fees, transaction speed, and total network capacity. We are delighted that through this implementation we can provide our customers with bitcoin withdrawal fees that are up to 20 percent lower, as well as faster-than-ever transaction speeds.”
Note that SegWit should not be confused with SegWit2x, which is a further upgrade that was contentious and eventually cancelled.
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