What is Segregated Witness (SegWit)?

🔍 What is Segregated Witness (SegWit)?

Segregated Witness, or SegWit, is a Bitcoin protocol upgrade introduced in August 2017. It changes how transaction data is stored, separating the signature (witness) data from the main transaction data.

Why is this important?

• In Bitcoin, transactions include digital signatures that prove ownership.

• These signatures can take up a large portion of the transaction size.

• Before SegWit, the signature data was part of the main block, making blocks fill up quickly and limiting scalability.

• With SegWit, the signature data is moved (“segregated”) into a separate structure.

This upgrade improved efficiency, reduced vulnerabilities, and made Bitcoin more future-proof.

⚠️ The Problem SegWit Solved

SegWit was introduced to address two key issues:

1. Transaction Malleability 🌀

   Before SegWit, attackers could alter the signature part of a transaction, changing its transaction ID (TXID) without affecting the actual transfer. This created confusion, broke dependent transactions, and was exploited in early exchange attacks.

   👉 By removing signatures from the TXID calculation, SegWit eliminated this vulnerability.

2. Scalability Limits 📉

   Bitcoin blocks were capped at 1 MB. Since signatures often made up 60%+ of transaction size, the network could process fewer transactions per block.

   👉 SegWit effectively increased block capacity (up to ~4 MB in weight units), allowing more transactions per block without changing the 1 MB block size rule.

⚙️ How SegWit Works

Here’s a simplified breakdown:

• Old System (Pre-SegWit):

  Transaction data = inputs + outputs + signatures

  • Signatures counted toward the block size.

  • TXID was calculated using signatures, making it malleable.

• New System (SegWit):

  • Signatures are moved to a separate “witness” field.

  • The TXID is generated without including witness data.

  • Block size is now measured in “block weight”, which combines base data + witness data more flexibly.

Effectively, this makes transactions smaller from the perspective of block limits, meaning more transactions fit into each block.

🚀 Benefits of SegWit

1. Fixes Transaction Malleability 🔒

   Prevents attackers from altering TXIDs, making Bitcoin transactions more secure.

2. Increases Capacity 📈

   More transactions per block, reducing network congestion and lowering fees.

3. Enables Lightning Network ⚡

   Without malleability fixes, Layer 2 solutions like Lightning wouldn’t work reliably. SegWit made scalable, instant payments possible.

4. Lowers Transaction Fees 💰

   Because SegWit transactions take up less block space, they often cost less in fees compared to non-SegWit transactions.

5. Improves Efficiency ⚡

   By streamlining how data is stored and processed, SegWit supports more flexible transaction structures and better scaling solutions.

🏦 Adoption of SegWit

• Initially, SegWit adoption was slow, as wallets and exchanges needed to update their systems.

• Over time, major players like Coinbase, Binance, and most Bitcoin wallets integrated SegWit.

• Today, over 80% of Bitcoin transactions use SegWit, showing that it’s now the standard.

📌 Final Thoughts

Segregated Witness (SegWit) was a game-changing upgrade for Bitcoin. By separating signature data from the main transaction, it fixed vulnerabilities, expanded block capacity, and paved the way for advanced payment networks like Lightning.

It’s a reminder that blockchain systems evolve—and sometimes, a small technical change can have massive impacts on scalability and security.