Segregated Witness (SegWit) is a term that refers to a modification in the Bitcoin transaction structure. Its declared objective as a protocol improvement was to defend against transaction malleability and to reduce transaction times via block capacity expansion. The term “transaction malleability” refers to the potential of altering small parts of transaction data, hence invalidating fresh bitcoin blocks. Additionally, it was meant to accelerate the validation process by keeping a greater number of transactions in a block.
The Bitcoin network consists of thousands of computers that act as validators for miner-created blocks. These computers are referred to as nodes, and each one maintains a comprehensive record of all transactions. This ledger is referred to as a blockchain.
As the Bitcoin network evolved, it encountered several issues. One was that more transactions occurred, which resulted in the addition of more blocks to the chain. Each block is formed every ten minutes and was previously limited to a maximum size of one megabyte (MB). Due to this limitation, a block can only contain a finite amount of transactions.
The volume of transactions, as represented by blocks, was saturating the network, resulting in delays in processing and confirming transactions. In other instances, it took hours to verify the validity of a transaction. Without SegWit, Bitcoin transaction validation would have slowed to a crawl as the cryptocurrency’s popularity and transaction volume surged.
SegWit splits the transaction into two halves. The unlocking signature (the “witness” data) is deleted from the original piece, but it is retained as a distinct structure in the blockchain at the conclusion. The original component provides information about the sender and recipient, while the independent structure at the end (dubbed “witness”) contains scripts and signatures. As a consequence of this data separation, additional room is produced on the blockchain, allowing for the addition of more transactions.
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To comprehend the motivations behind SegWit’s implementation, it’s critical to comprehend what goes on behind the scenes that make it beneficial.
SegWit’s advantages include the following:
Authors of Wallets Keep Track of Spent Bitcoins
It’s simplest to keep track of your outbound transactions by searching for them by txid. However, in a system with third-party malleability, wallets must incorporate additional functionality to cope with altered transaction identifiers.
Anyone Who Spends Money on Unverified Transactions
If A pays B in transaction 1, then B uses that payment to pay C in transaction 2, and then A’s payment is malleated and verified with a new transaction ID, transaction 2 becomes invalid and C is not paid. If B is trustworthy, he will resend the money to C; but, if he is not, he may just retain the bitcoins.
Introducing the Lightning Network
With third-party and scriptSig malleability resolved, the Lightning Network becomes substantially easier to construct and significantly more efficient at using blockchain space. Without scriptSig malleability, it is also feasible to host lightweight Lightning clients that outsource blockchain monitoring, rather than each Lightning client having to be a complete Bitcoin node.
Anyone Who Makes Use of the Blockchain
Today’s smart contracts, such as micropayment channels and upcoming new smart contracts are becoming easier to develop, comprehend, and monitor. To summarise, SegWit avoids third-party and scriptSig malleability by enabling Bitcoin users to shift flexible transaction components into the transaction witness and segregating that witness so that changes to the witness do not influence the txid calculation.