What is Segwit?
Segwit is the short term for “segregated witness”, and is a suggested upgrade to the Bitcoin software. Segwit was conceived by Dr. Pieter Wuille back in 2015 and basically means “to separate the digital signature from the block”.
How does a normal block of transactions on Bitcoin work, and how can Segwit improve it?
To understand more about Segwit, you need to learn how normal blocks work, and the issues they hold.
A bitcoin block size is usually 1MB and has 3 layers:
- The digital signature is a unique codification of a single block and serves the miners to verify the transaction. A digital signature is made of the private key and the transaction message.
- Public keys of the users that are sending and receiving the transaction.
- The transaction, which indicates the amount that is being transferred.
The quantity of transactions made since the launching of Bitcoin is huge and is slowing down the system, requiring more energy, hence larger costs. This is why experts recommended separating the transaction data from the digital signature.
Because of the freed space, the capacity of the chain to register more transactions will increase.
What are forks and how do they work?
The blockchain network is open-source. This means that the code is available to everyone, and anyone can suggest different types of improvements and change it.
A fork happens when the software of distinct miners becomes misaligned, and miners, in a unanimous way, have to choose which one of these versions of the blockchain to use. If there isn’t a unanimous consensus, there will be two different blockchains.
Forks are frequently related to the issuing of new tokens. There are two ways to launch a new cryptocurrency; either to create it from the beginning or “fork” it. When two versions of blockchain are generated and a unanimous decision to continue with only one of them, one can continue as the first token (for example Bitcoin), and the other can produce another token (how Bitcoin Cash was created).
Forks can be categorized as:
- Hard forks are permanent separations from the former blockchain version. A major change is made to the software and is necessary for every user to use the updated blockchain. Those that continue running the old software won’t be integrated into the new one.
- Soft forks are usually used to apply software upgrades. The new version of the blockchain is used to validate transactions. The miners that still utilize the old software will anyway see the new blocks as legitimate. But the new blockchain won’t acknowledge the non-updated nodes. For a soft fork to function, the majority of the users need to upgrade to the latest version.
How does Segwit work?
Since Bitcoin is a decentralized cryptocurrency, approximately 95% of the miners have to consent for an upgrade to be made. In the beginning, Segwit was intended to function as a hard fork, but then it was decided for a soft fork. The first Bitcoin Segwit was achieved in 2016 as a soft fork, followed by another one in 2017.
Pros of Segwit
- Transaction costs are minimized.
- Transaction time decreases.
- Lower network load.
Cons of Segwit
- It is difficult to implement.
- May create perplexity to the software users.
- If a mistake is made during the upgrade, the whole system will crash.
- It is exposed to distributed denial-of-service (DDoS) attacks.
What is Native Segwit?
Also known as bech32, Native Segwit is an improved variation of Segwit. Since it is even more load efficient, transactions will be even faster. Native Segwit also delivers improved scalability, makes transaction costs decrease, and is better at detecting errors. The only downside to Native Segwit is that not all exchange platforms and digital wallets support bitcoin transactions to Native Segwit users.
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