What is SegWit and How it Works?
If you are interested in cryptocurrencies, there is no way you have not heard of Segwit before. Some people think that this is going to transform Bitcoin for the better, while some prefer going their own way with a totally new model of Bitcoin called Bitcoin Cash!
Segregated Witness, often abbreviated to SegWit, is an update to the Bitcoin software, designed to fix several pressing issues.
SegWit is a proposed update to the Bitcoin Core, developed by its long-standing team. Bitcoin Core is currently the most popular Bitcoin reference client, used by the majority of the businesses in the industry.
Initially, the update was aimed at solving transaction malleability, a well-known weak point in Bitcoin software. Although this point of attack is not the most damaging to the users, it has been abused in several instances already, emphasizing the need to patch it.
However, SegWit offers a variety of other benefits, and by now, the focus of attention has moved from fixing the transaction malleability to solving the problem of Bitcoin scaling. Bitcoin is currently experiencing massive scaling problems, and things can only get worse over time.
The proposed solution for Bitcoin Scalability Issue
SegWit increases the Bitcoin’s block size limit and enables the implementation of the second-layer solutions for further development.
Current problems of Bitcoin scalability arise fundamentally from the insufficient block size. Consecutive blocks of transactions are what the Blockchain is made of. The Blockchain, in turn, is the digital ledger of all transactions that have happened in the network until this very moment — the lifeblood of the cryptocurrency.
The problem here is that at the moment, blocks are hard-coded to the limit of one megabyte. This is not suitable to account for the hundreds of transactions that the users are attempting to send every minute.
Consequently, a lot of those users have to wait in line until their transactions can be confirmed; sometimes for hours or even days. As the network grows, so does the transaction intensity, while the block size limit stays the same. This means that the problem is just getting worse and worse.
SegWit’s resolution to this is twofold. First of all, it allows an immediate increase in the block size limit to four megabytes. There is one caveat here: four MB is the fixed maximum, while the exact block size will depend on the network conditions. It is predicted by experts to be in the range of about two to 2.1 megabytes directly after SegWit’s activation.
Secondly, by solving transaction malleability, SegWit erases what used to be a minor problem for Bitcoin itself, but a significant barrier to implementing second-layer solutions on top of it. One of those solutions is the Lightning Network. It is expected to enable a massive increase in the network capability by moving the bulk of transactions off the Blockchain for quicker processing.
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