SegWit, Explained

SegWit, Explained
What is Segregated Witness?

Segregated Witness, often abbreviated to SegWit, is a proposed update to the Bitcoin software, designed to fix a range of serious 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, in use by the majority of the businesses in the industry.

Originally, the update was aimed at solving transaction malleability, a well-known weak spot in Bitcoin software. Although this vector of attack is not the most damaging to the users, it has been exploited in several instances already, highlighting the need to patch it.

However, SegWit offers a range of other advantages and by now the focus of attention has shifted from fixing the transaction malleability to solving the problem of Bitcoin scaling. As we have explained in the eponymous article, and in many others, Bitcoin is currently experiencing massive scaling problems, which are only getting worse with time.

What is SegWit’s solution to the Bitcoin scaling problem?

SegWit increases the Bitcoin’s block size limit and allows the implementation of the second-layer solutions for further improvement.

Current issues of Bitcoin scalability arise primarily from the insufficient block size. Consecutive blocks of transactions are what the Blockchain is comprised of. The Blockchain, in turn, is the ledger of all transactions that have taken place in the network up until now - the lifeblood of the cryptocurrency.

The problem here is that currently, blocks have a hard-coded limit of one megabyte. This is not enough to account for the hundreds of transactions that the users are trying to send every minute.

Consequently, a lot of those users have to wait in line until their transaction can be confirmed; sometimes for hours or even days. As the size of the network grows, so does the transaction intensity, whereas the block size limit stays the same, which means that the problem is continuously getting worse.

SegWit’s solution to this is twofold. First of all, it enables an immediate increase of the block size limit to four megabytes. There’s one caveat here: four MB is the absolute maximum, while the actual 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 immediately after SegWit’s activation.

Secondly, by solving transaction malleability, SegWit eliminates what used to be a minor problem for Bitcoin itself, but a major barrier to implementing second-layer solutions on top of it. One of those solutions is the proposed Lightning Network. It is expected to allow for a massive increase in the network capacity by moving the bulk of transactions off the Blockchain for quick processing.

Why hasn’t SegWit been activated yet?

SegWit is set to activate as soon as 95 percent of the network measured in hash power signals support for it.

If the support for a new set of rules is insufficient, it may result in a contentious fork, where a significant part of the network goes ahead and switches to a new client but some decide to keep using the old one. That leads to a simultaneous existence of two cryptocurrencies with different sets of rules competing with each other for users.

Such scenario may lead to unpredictable outcomes and is quite likely to have a powerful negative impact on the value of both currencies, at least in the short term. In order to avoid a contentious fork, the developers of SegWit have set a specific rule in the software, that it will only activate if it receives almost unanimous support of the network - 95 percent.

Currently, the level of support is hovering at around 32 to 33,8 percent and it has never been above that. The level of support is so low because there is a large block of users opposing the update on various bases.

What are the main arguments against SegWit?

The key points against SegWit can be roughly divided into three groups: technical, political and ideological.

Some have argued that SegWit, in its current state, will not be able to solve the problems it promises to solve. One of the primary arguments here is that the block size increase proposed by the update is not nearly enough to satisfy the growing needs of Bitcoin’s user base.

The majority of the experts seem to agree about the high technical competence of the authors of SegWit, as well as the solidity of the technology itself. However, it is nearly impossible for a person who is not a programmer to evaluate the authenticity of the arguments proposed by both sides.

The fact that the debate is now not purely technological but has a political aspect too only complicates things. A large number of people working on SegWit are also employed by a company called Blockstream, whose primary product is sidechain solutions.

Some from the community claim that this creates a conflict of interest, as the developers are incentivized to obstruct attempts at increasing the block size, in order to artificially increase the demand for sidechain solutions, such as the Lightning Network. There is no definitive proof for this claim but a large part of the community has still chosen to believe in it and is opposing SegWit as a result.

The main ideological argument, leveled against the update, is that it does not provide scalability while preserving a sufficient degree of decentralization of the Bitcoin network. As has been said earlier, SegWit solves the long-term problems with Bitcoin’s insufficient transaction capacity only insofar as allowing for implementation of second-layer sidechain solutions, such as the Lightning Network.

The problem some people see here is how the sidechains work. In order to not rely on the highly congested Blockchain, they move the coins to a second-layer system. There, all transactions are processed by a trusted third party, without having to broadcast them across the entire network, which saves a lot of resources and time.

But a trusted point of authority in charge is exactly what Bitcoin was meant to remove from the monetary system. For some, that is an unacceptable compromise, no matter how little power the third party wields in solutions such as the LN and others.

Who supports SegWit then?

A wide range of individuals and companies have endorsed SegWit at some point in the past and when it comes to businesses implemented software support for it.

Over 100 of the industry’s most prominent companies are known for a fact to either plan, work on or have implemented support for SegWit in their businesses. The entire list is here.

In addition, many prominent individuals known for their work in the Bitcoin community have made clear their support for SegWit on Twitter, and various other platforms. Among them are Andreas Antonopoulos, Samson Mow, Charlie Lee and others.

Of course, the most direct support comes from the miners. At the time of writing, more than 33.8 percent of them are signaling their explicit approval of SegWit. 

The current support level can always be checked here.