Welcome back to another beginner’s tutorial on cryptocurrency! I’m going to explain what SegWit is to you today.
There are hundreds of cryptocurrencies on the market, and each has its own set of regulations that govern how it operates. We refer to this set of regulations as a protocol. So, what does this all have to do with SegWit? What exactly is SegWit?
Cryptocurrencies, like any computer program, need upgrades and improvement. You must resolve all the bugs and issues. When your laptop asks you to shut down and update, this happens.
When a cryptocurrency’s protocol upgrades or enhances, it must make adjustments. SegWit was an update for the Bitcoin protocol.
In this article, I’ll explain all you need to know about SegWit. I’ll explain what SegWit is and how it works. I’ll also explain what enhancements it has made to the Bitcoin network and what these enhancements signify for its users.
You will never have to question yourself, “What is SegWit?” again after reading this guide. Let’s start with where SegWit came from and what it was aiming to accomplish.
Pieter Wuille initially proposed the SegWit protocol during a Bitcoin conference in 2015. Wuille is a Bitcoin creator and co-founder of Blockstream, a software firm specializing in digital security for financial services.
Wuille proposed SegWit as a fix for a weakness in the Bitcoin protocol. They fixed patches on problems in software development. We know the issue he wished to address is transaction malleability. Transaction malleability is a geeky term for the ability of Bitcoin to be stolen from users by modifying small parts of transaction information. Don’t worry, I’ll go through everything in greater depth in the following part.
Wuille’s SegWit proposal sparked heated controversy in the Bitcoin community, and it took nearly two years for it to become operational. It was ultimately turned-on on August 23, 2017. On May 10, 2017, they implement the identical change in the Litecoin protocol.
SegWit solved the transaction malleability problem while also allowing for certain additional Bitcoin protocol upgrades. However, it still has many detractors, and not all Bitcoin network users have welcomed the modifications. Some members of the Bitcoin community are so opposed to SegWit that they have formed competing coins.
Before we get into it, let’s inspect transaction malleability. So, what exactly is transaction malleability, and how is SegWit combating it?
Transaction malleability is a hard concept to grasp. To grasp it, you must first understand how Bitcoin transactions function…
The Principles of Blockchain
Bitcoin is a massive network comprising thousands of computers known as nodes. Each node holds a complete record of every Bitcoin transaction ever done. We refer this to as a blockchain.
Special nodes, known as miners, perform most of the labor involved in processing new transactions. Users pay transaction fees to miners for the job they undertake. They may upload new transactions to the blockchain only after miners arrange them into groupings of transactions known as blocks. Each Bitcoin blockchain block holds 1MB of transaction data.
The network should execute one batch of transactions in around 10 minutes, but it can take much longer. The Bitcoin network has a transaction rate of 3-7 transactions per second (Tx/s). When the network is congested, this might cause a significant slowdown.
Scalability of Bitcoin SegWit.
To begin, let me define scalability. Scalability refers to a network’s capacity to handle large volumes of transactions without slowing down transaction rates. If a network is scalable, it will handle transactions at the same rate, if not quicker, as it grows in size. Unfortunately, most cryptocurrencies execute transactions more slowly as they become larger.
Because consensus performs transactions, cryptocurrencies have a scalability issue. More than half of the Bitcoin network nodes must agree that a transaction is genuine before you can add it to the blockchain. The larger the network, the longer it takes to establish an agreement or consensus.
For a long time, the Bitcoin community has debated various approaches to growing the network. As the site grows in popularity, the situation worsens, and time is running out to find a solution.
When Pieter Wuille invented Bitcoin SegWit, he unintentionally boosted the network’s scalability! Witness data accounts for 65 percent of each Bitcoin block. By deleting witness data, SegWit Bitcoin blocks now have significantly more area for transaction data.
Each block now has a fixed block weight that is limited to 4MB. The weight of a block is determined by combining the 1MB of information recorded on the main blockchain with the witness data saved on a side-chain. A segregated witness enables the network to perform more transactions while remaining unchanged.
What is SegWit: The Pros?
- Transaction malleability is no longer an option. SegWit is a straightforward and inventive solution to a key issue in the Bitcoin system.
- Bitcoin transactions are more rapid. SegWit reduces the size of the Bitcoin blockchain. It enables more transactions to be executed without increasing the total size of the Bitcoin blockchain.
- Bitcoin transactions are less expensive. We associate lower transaction costs with faster transaction speeds. Bitcoin transaction costs may be astronomical, therefore any adjustments that reduce the community should welcome them.
- Possible new and interesting advancements. If Bitcoin wants to service a network of millions of individuals, it must address scalability. SegWit contributes to the realization of scaling schemes such as the Lightning Network.
What is SegWit: The Cons?
- It is not being used by enough nodes. Miners don’t like SegWit. Lower fees reduce their revenues, and they dislike having to support the witness-data side chain, which generates no fee money at all. Other Bitcoin services, such as wallets, have been hesitant to embrace the SegWit improvements as well.
- It is a short-term fix for long-term difficulties. Some Bitcoin developers have expressed concern that the SegWit protocol does not go far enough to address the scalability issue. They say that only significant improvements to the Bitcoin blockchain size and transaction processing will allow the platform to expand in the future.
- SegWit has divided the Bitcoin community. Several hard forks have resulted from debates about SegWit. Bitcoin Cash (BCH) is the most well-known of these.
With all the information, you can answer the question “What is SegWit?” for yourself. Before I go, I’d want to make a few last words.
Pieter Wuille created SegWit to address the issues that transaction malleability was causing. But SegWit achieved much more: it sparked a tremendous debate over the future of the Bitcoin platform itself. Bitcoin has been around for over ten years. It is still the largest cryptocurrency in the world, but some are questioning if it is the greatest.
Hundreds of new blockchain initiatives have emerged, delivering some of the most powerful crypto technologies ever seen. Some regard SegWit Bitcoin as a beneficial development for the network. Others regard it as a sign of Bitcoin’s limits.
The SegWit argument rages on in the Bitcoin community, and you now have enough information to weigh in. What does Segwit mean to you? Is this a great recent development that will propel Bitcoin forward? Is it a temporary answer to the Bitcoin network’s far larger problems? Consider it, and I’ll see you next time!