What is Segwit (Segregated Witness)?

what is segwit

SegWit (Segregated Witness) was a major upgrade for Bitcoin. The code was released in 2015, and Segwit finally went live on Bitcoin in August 2017.

Segwit Benefits

SegWit improves Bitcoin and fixes a number of bugs. The main features of Segwit are described in detail below.

Capacity Increase

Segwit doubled the capacity of the Bitcoin network.

A lot of people are claiming that SegWit did not increase the block size. It’s very easy to see that, yes, SegWit was a block size increase!

Here, for example, we can see a 2,177 KB (2.17 MB) Bitcoin block mined in January 2018.

block height

Segwit Fixes Transaction Malleability

In addition to increasing Bitcoin’s ability to process transactions, SegWit fixes a fatal flaw in Bitcoin’s protocol that allowed users to tamper with transaction identities.

Before SegWit, the Transaction ID of a transaction could have been changed by manipulating the unlocking code of the transaction (your digital signature). After you digitally sign a transaction, it is sent through Bitcoin’s cryptographic hash function which results in a unique transaction ID.

transaction malleability illustrated
A view of a malleated transaction

If one character is changed in the digital signature, it will result in an entirely different transaction ID. SegWit moves the signature to the end of the transaction data, so the Transaction ID is created from everything but the digital signature.

In effect, this change renders it impossible to change the Transaction ID – if malicious nodes were able to tamper with Transaction IDs, the Lightning Network wouldn’t be possible.

Segwit Adoption

Segwit adoption is increasing. Nearly 40% of all Bitcoin transactions use SegWit addresses.

segwit adoption chart

Why Segwit is Important

Bitcoin is by far the largest cryptocurrency by market cap, and for good reason. However, many in the crypto space have criticized Bitcoin because it is having trouble scaling to its ever-expanding user base.

Bitcoin is only capable of processing a mere 7-10 transactions per second on the base layer. Bitcoin’s underlying technology, although revolutionary, has also become one of Bitcoin’s most significant challenges.

Nevertheless, prominent developers in the Bitcoin community are working to develop a solution to the problem. SegWit and the Lightning Network together will allow Bitcoin to process millions (or more) transactions per second.

segwith and lightning network logo

How Bitcoin Works

Before you can understand SegWit, you must first understand how Bitcoin transactions are processed.

This video may help give you some background before reading on:

You can think of the Bitcoin (bitcoin is modeled after gold) network like a chain, and each link in the chain is a block. For the sake of simplicity, let’s picture a block that only contains one transaction. If Mike sends 1 BTC to Bob, he’d add important data to the block:

Mike’s public key and digital signature must be included in the block to prove that the transaction is legitimate and really did come from him. The digital signature is included in the block as script (you can think of script as code). Just like people sign checks to authorize them, users of the BTC network must sign transactions to authorize them.

Despite being necessary to authenticate transactions, digital signatures fill up a lot of space that could otherwise be used for transaction data.

transaction signature illustration
Signatures represent about 60% of the file size of a transaction

When thousands of transactions are initiated at once, there is not enough room for all of them to enter the same block. Users must pay a transaction fee which incentivizes miners to include their transaction in the block before others’. The more you pay, the faster your transaction will go through.

Unfortunately, transaction fees can get quite pricey. In December of 2017, it wasn’t unheard of to pay $50 per transaction if you wanted it to be validated within 10-20 minutes. Bitcoin’s scalability issue is one of its most significant obstacles prior to mainstream adoption. Nobody in today’s society wants to pay $20 for a cup of coffee while waiting around for their payment to clear.

bitcoin fees in 2017
This graph shows the height of Bitcoin fees in December of 2017

Something must change.

Some believe the best way to solve the problem is expanding Bitcoin’s block size – however, that solution would require Bitcoin to hard fork. Rather than forking into a completely new cryptocurrency, SegWit has been implemented to significantly increase Bitcoin’s ability to process transactions.

For an easy primer on the lifecycle of a standard Bitcoin transaction, you can reference the image below from the Bitcoin wiki.

bitcoin trannsaction lifestyle

How Segwit Works

Segwit was activated via UASF. As mentioned previously, every block is composed of transaction data (public key, amount of BTC, etc.) and script (the sender’s public key and their digital signature). Although it is imperative that digital signatures are included in the validation process, they use a lot of space in blocks that could otherwise be used for more transactions.

Digital signatures, also known as witnesses, take up 60% of transaction data and usually the witness data exists in the middle of the transaction data. Segregated Witness is a way to remove the witness (signature) from the transaction – instead, SegWit transactions move the witness data to the end of the transaction. When a SegWit transaction is being validated by a Legacy node (one that hasn’t upgraded), the witness data is stripped from the transaction. By removing signatures from the main block of transactions, transaction size is notably smaller, thus allowing far more transactions per block.

segwit cuts out the signature data
Removing the signature from the transactions frees up space for more transactions

It is important to note that prior to SegWit, Bitcoin’s maximum block size was 1,000,000 bytes (1MB) – that is, once that data limit was reached, the block was no longer able to accept more transactions and any other transactions that weren’t included in the block had to wait in the mempool.

SegWit, contrary to popular belief, is indeed a block size increase. SegWit has implemented a new way to measure the size of transactions. Instead of relying on a 1,000,000-byte block size, SegWit measures blocks using something known as block weight.

Here’s the formula used to calculate block weight:

(tx size with witness data stripped) * 3 + (tx size)

block weight over time
block weight table over time

Legacy transactions don’t have any witness data because it was stripped. So, the weight of a legacy transaction is effectively four times larger. SegWit transactions do have witness data, but it’s at the end of the transaction rather than being in the middle, so they are less than four times the size.

Since Segwit transactions are broadcasted to all nodes with the witness data stripped, the legacy nodes will never have to validate a block greater than 1,000,000 bytes, therefore adhering to Bitcoin’s original protocol.

Conversely, SegWit nodes can receive blocks that are very close to, but not quite 4MB in size. In order for a block to be (near) 4MB, it would have to consist of primarily witness data rather than transaction data. It would be incredibly close to 4MB with the witness data, but still, less than 1,000,000 bytes when stripped of the witness data.

segwit address vs legacy address

Although SegWit nodes are capable of validating a 4MB (4,000,000 bytes) block, in practice, that block size is ridiculously large. In most cases, a SegWit block will not exceed 2MB.

What’s The Bottom Line on SegWit?

Before After
Max Block Size 1 MB 4 MB
Transactions per Second 3 TX/s 7 TX/s
Transaction Malleability Bug
Broken Fixed

SegWit is the foundation for the Lightning Network. By eliminating the possibility for transaction malleability, secure payment channels can be created that will eventually allow the Bitcoin network to process millions of transactions per second. Lastly, SegWit is a way to help Bitcoin scale to accommodate its ever-expanding user base, without forcing a hard-fork.

FAQ

What Does Segwit Mean?

Segwit is short for ‘segregated witness’.

Is Segwit a Fork?

Segwit was a soft fork. This is opposed to a hard fork which would create a separate coin (such as Bitcoin Cash). It added features and fixes to Bitcoin in 2017.

Do Hardware Wallets Support Segwit?

Yes, hardware wallets like Ledger and TREZOR support Segwit.

Who Created Segwit?

Segwit was developed by Peter Wuille. He’s one of Bitcoin’s most prolific developers, and won Coindesk’s 2017 Most Influential Award.

Is Segwit Activated On Litecoin?

Yes, congrats Litecoin! :) Litecoin will also be adding more features in the future.

Segwit2x Fork: What Was It?

In 2017, Bitcoin was enjoying massive growth.

At the start of the year, the price hovered around $1000, but by November it had soared to $7000. It was also fluctuating wildly.


2017 bitcoin price chart
Bitcoin's price chart for 2017

The decentralized monetary system had been presented with the kinds of challenges that they weren’t prepared for.

The increase in demand for the cryptocurrency led to a massive increase in transactions, which then drove the cost of operations and the length of time it took for transaction confirmations due to the mempool always being full.

If Bitcoin was going to scale in any real sense, it needed a software upgrade to its protocol. Which is where SegWit and SegWit2x were supposed to help.

Hard Forks vs. Soft Forks

It helps here to explain a little bit about how blockchain upgrades work. Part of the issue with SegWit2x was that it required a hard fork, as opposed to vanilla SegWit, which would only require a soft fork.


greenlighting soft forks
Usually, miners can green-light a soft fork and set its activation time by leveraging their hash power.

A soft fork is, at its core, backwards compatible. It allows for a shift in network rules and creates blocks that will still be recognized by existing, non-upgraded software.

On the other hand, a hard fork involves taking a blockchain and splitting it into two permanently. It performs a complete overhaul of the rules that apply to the blockchain and completely redesigns it so that it will not recognize old software.


Binance has one of the best videos explaining the difference between hard and soft forks.

In some cases, a hard fork can split a network into two, creating different systems that allow people to choose which they wish to adopt. This was seen in the case of bitcoin and bitcoin cash.

However, a split can also be caused if enough people adopt both possible outcomes, causing disruption to networks and systems.

What was SegWit2x?

In 2017, users had been paying miners a lot of money to make transactions. Fees were high and users were annoyed. Bitcoin needed to scale to service more transactions.


bitcoin fees in 2017
Fees got up to nearly 1000 Satoshis per byte.

SegWit2x was a proposal that would require a hard fork, and it was built on the back of a soft fork proposal.

At it’s heart, Segwit2x was two separate changes to Bitcoin combined into one.

First, you have Segregated Witness or ‘Segwit’ which removes the witness or ‘signature’ data from the input field of a block.


segwit explanation explained
SegWit vs non-SegWit block, courtesy of CoinTelegraph.

Segwit was the “small blocker” solution to scaling Bitcoin - instead of increasing the block size, you would instead use the existing block space more efficiently.

Then you had the “big blocker” solution, which is where the ‘2x’ comes from. Their solution was to simply double the size of existing blocks.


block size increase


And that is where the New York Agreement came into play.

This agreement was initially formed so that the Bitcoin network would prevent splitting into two different coins.

The solution proposed by the agreement runners was to give both parties what they wanted: a doubling of the block size and an activation of Segwit.


segwith plus blocksize increase


In order to implement SegWit2x, there would have to have been a considerable change in the rules of bitcoin governance.

However, the revolutionary aim was that SegWit2x would keep all existing bitcoin users on the same singular blockchain.

Who supported SegWit2x?

In the run-up to its proposed adoption, startups and miners were the most overt supporters of the new update. Fundamentally, this was based on the frustrations people had over bitcoin adoption. Bitcoin’s slowness caused other cryptocurrencies to overtake it.

Existing upgrades had caused massive amounts of frustration as they failed to address many of the issues that bitcoin was facing - and where a remedy was made, it often wasn’t anywhere near what it could have been.

While the initial Segwit proposal failed to excite miners, SegWit2x actively incentivized on-chain transactions, allowing them to turn a profit. With the time and investment that miners spend on their equipment, it was only common sense that they hoped to see better returns on their investment.


man working in mining farm
Miners were not initially excited about Segwit

The other huge fans of the SegWit2x proposal were larger bitcoin companies like Circle and Coinbase. While they would ultimately suspend their support, their logic was similar to that of miners and startups.

For the most part, these companies make money when there is lots of coin circulation. More transactions equals more fees for them to charge. If users don’t want to send their coins to your exchange because the transaction fees are too high, that is bad for business.


Coinbase CEO Brian Armstrong recently interviewed with Peter McCormack about their role in the New York Agreement

This satisfied many of the shared aims of the various stakeholders. It would allow Bitcoin to increase its transaction throughput in the short term and allow exchanges and miners to continue to make money as usual even if it meant potentially harming what made Bitcoin great.

The problem with Segwit2x

The opposition to SegWit2x came from node operators and developers. Part of the debate came from an inherently different understanding of what matters most about Bitcoin.

For opponents of Segwit2x, decentralization was of prime importance. Doubling the block size would make it harder to run your own node and verify your own transactions.


mynode full node software
Syncing a new node can take weeks and hundreds of dollars even with 1mb blocks

Fans of Segwit2x wanted on-chain Bitcoin transactions to be more like ‘coffee money’, meaning it was something you could use today to buy a cup of coffee without paying high fees.


pay a tab with lightning network
Segwit2x wanted to make on-chain transactions used like pocket money

The risk of introducing a new protocol challenged this, and with people feeling like miners and businessmen would reap the rewards, the risks outweighed any potential benefits. While SegWit2x would increase the speed of transactions, the burden would have been felt more keenly by node operators who would have to store more data.

With opposition in both ideology and the rollout of the protocol, SegWit2x led to a battle within the blockchain community. While attempts were made to create a consensus on when and how the protocol should be implemented, it was ultimately too wide a gulf to bridge.

collapse of new york agreement headline


The SegWit2x hard fork was scheduled for November 16, 2017. Yet on November 8, the proposal was suspended due to the ongoing resistance to the protocol. Companies such as Coinbase and Circle revoked their support, and ultimately the protocol failed.

What Are the Other Forks of Bitcoin?

Bitcoin Unlimited

Bitcoin Unlimited “follows the release of Bitcoin XT and Bitcoin Classic”.

XT and Classic were two previous attempted hard forks that also failed. Like Classic and XT, Unlimited is also supported by a small group of Bitcoin mining pools.

With the Remote Exploit Crash bug discovered in Bitcoin Unlimited, the proposal went down the path of failure like XT and Classic.

The Remote Exploit Crash bug was the second major bug exposed in Unlimited and caused more than 350 Bitcoin Unlimited nodes to crash instantly.

The first bug occurred when a mining pool running Unlimited mined an invalid block, resulting in the loss of 13.2 BTC.

Like Classic, many of the Bitcoin Unlimited nodes were to be fake. New Unlimited nodes popped up in massive numbers at around the same time.

Bitcoin Unlimited Node Chart

bitcoin nodes chart

Bitcoin Classic

Bitcoin Classic was the second failed attempt to fork Bitcoin.

The proposal itself gained wide support from Bitcoin companies and a few mining pools.

Like XT, a lack of support for the proposal among the Bitcoin community as a whole led to the failure of this hard fork attempt.

Most of the Classic nodes that popped up were fake and hosted from the same ISP.

Bitcoin Classic Node Chart

bitcoin classic nodes chart

Bitcoin XT

Bitcoin XT was the first unsuccessful hard fork of Bitcoin.

Led by developers Gavin Andresen and Mike Hearn, XT attempted to raise the Bitcoin block size to 8 MB.

Despite support from a few large Bitcoin companies, the proposal failed to gain enough support from the community and Bitcoin users.

Frustrated with the lack of support for XT, Hearn labeled Bitcoin a failure, quit working on the project, and sold all of his bitcoins in January 2016.

Bitcoin’s price is up more than 300% since Hearn quit.

Bitcoin XT Node Chart

Bitcoin XT node chart

Bitcoin vs Bitcoin Cash Hard Fork

Bitcoin welcomes this type of activity by being built on open-source software.

There’s been a sort of tug of war going on between Bitcoin developers since 2017, which was the main driving force behind the hard fork, ultimately leading to the creation of BCH.

The main driving force that caused this tug was the argument of how large or small each block in bitcoin’s blockchain should be.

The more conservative Bitcoin developers believed that increasing bitcoin’s block size from 1mb to 2mb was more than enough, while others argued that it was too small and wanted to expand it to 8mb, so each block could record more transactions.

A consensus could not be reached, so at bitcoin’s 478,558 block, a hard fork occurred, creating Bitcoin Cash.

About the Author: Jordan Tuwiner

Jordan Tuwiner is the founder of BuyBitcoinWorldwide.com. His work has been featured in The Guardian, International Business Times, Forbes, VentureBeat, CoinDesk and many other top Bitcoin media outlets. His articles are read by millions of people each year looking for the best way to buy Bitcoin and crypto in their country.

He has also written extensively about the history, technology, and business of the crypto world. Jordan is also the creator of some of the internet's most famous Bitcoin pages, including The Quotable Satoshi and Bitcoin Obituaries.

To learn more about Jordan, see his full bio.