SegWit (Segregated Witness)

Key points

• Defining SegWit (Segregated Witness)
• Understanding Transaction Process
• Challenges Witnessed
• Mitigation Plan

Defining SegWit (Segregated Witness)

The meaning of ‘segregate’ is to detach, and transaction signatures are the witness. Thus, SegWit means to detach signatures from transactions.   

SegWit is the process of increasing the block size limit on a blockchain by removing Bitcoin signature data from transactions. By removing the signatures, more space is freed in the block, to accommodate more transactions to chains. 

Understanding Transaction Process

Multiple systems called nodes that act as administrators of Bitcoin transactions, are present on Bitcoin blockchains and distributed across a peer-to-peer network. All transactions made on Bitcoin get duplicated across these nodes, making it impossible to either corrupt or hack into these transactions. 

Every transaction comprises two components, outputs, and inputs. In every transaction, there could be multiple inputs and outputs or there could be just one. The public address of the sender is input and the public address of the receiver is output. To send the funds, the sender requires the public address of the receiver. About 65% of the space in every transaction is acquired by the signature, a part of the input. The signature helps in verifying that the sender has the required funds to make the payment. After the transaction has been verified by the nodes, it gets included in a block. The blocks are then added to the general ledger or chain for access to the general public.   

Challenges Witnessed

With the increase in the number of transactions, more blocks are required to be added to the chain. Every 10 minutes, blocks are generated and each block is constrained to a size limit of 1MB. Because of the limited size of the block, only a certain number of transactions can be added to the block. In a situation where the transactions increase and create a bottleneck, it may take hours for transactions to be validated. It was getting essential that a long-term solution for this problem was identified.   

Mitigation Plan

The mitigation plan to address the problem was SegWit, which was suggested by Bitcoin developer Dr. Pieter Wuille. In SegWit, the signatures are removed from input and are moved to a structure present at the end of the transaction. This will help in increasing the block size limit and would increase the capacity of blocks to hold more transactions. Apart from this, SegWit also addresses a problem where the receiver could tamper with the transaction ID of the sender in an attempt to acquire more coins from the sender. Without the digital signatures, the immoral party will not be able to tamper with the transaction ID without also nullifying them.     

  Disclaimer: The article is just to provide information and shouldn’t be considered as any financial advice. It is advisable to conduct thorough research before investing in any cryptocurrency.

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