SegWit - The Blockchain Transaction Revolution

Blockchain technology has undoubtedly revolutionized the way we store information and conduct transactions. One of the most important developments in the cryptocurrency world was the introduction of Segregated Witness, better known as SegWit. Interestingly, the first cryptocurrency to implement the SegWit layer was not Bitcoin, but Litecoin.

What is SegWit?

Segregated Witness is an extension to the Bitcoin protocol that aims to solve some of the problems of blockchain technology, particularly that of scalability.

For example, in a traditional Bitcoin transaction, all data, including transaction details and digital signatures, are stored in one block. SegWit removes this name-giving "witness data" (digital signatures) of a transaction from the main block (see graphic). Also evident in the graphic is that, as a result, the transaction size is greatly reduced, allowing more transactions to be held in a block.

Transactions stored in blocks without and with SegWit.

The advantages of SegWit

  1. Scalability: By separating signatures and transaction details, SegWit can accommodate more transactions in a block. This increases the scalability of the Bitcoin network while reducing transaction fees and latency.
  2. Malleability attacks: SegWit addresses the problem of transactional malleability, i.e., the identifier of a transaction can be manipulated without changing the outcome. This provides a more secure environment for smart contracts and blockchain-based applications.
  3. Lightning Network: SegWit paved the way for the Lightning Network, an off-chain scaling solution that enables fast and low-cost microtransactions. By combining SegWit and the Lightning Network, Bitcoin transactions can be processed in near real-time.

Impact on the blockchain industry

SegWit has had many impacts on the crypto market, both long-term and short-term. Below are some of the major impacts SegWit has had on the crypto market:

  1. Reduced transaction costs: SegWit reduces transaction fees because more transactions can be stored in a block. This is especially beneficial for users who frequently perform small transactions.
  2. Increased network speed: SegWit's scalability helps reduce network congestion and increase transaction confirmation speed.
  3. Improved security: by eliminating malleability attacks, SegWit provides a more secure platform for developing decentralized applications and smart contracts.

Disadvantages of SegWit

  1. Soft Fork: SegWit is implemented as a soft fork, which means that it is backward compatible and is also supported by nodes that do not have SegWit enabled. This means that there are still legacy transactions that do not benefit from SegWit. Some believe a hard fork is a better solution to ensure wider adoption and use of SegWit.
  2. Deployment of second-layer solutions: SegWit paves the way for second-layer solutions like the Lightning Network that perform transactions outside the main blockchain. Some believe this will lead to increased complexity and dependencies on other technologies. There are concerns that this will harm decentralization and reduce trust in the main blockchain.
  3. Possible centralization: Some argue that SegWit could lead to certain transactions being prioritized, which could lead to possible centralization. Wallet providers and miners can control how they prioritize transactions and which types of transactions benefit from SegWit. This may lead to inequality and anti-competitive behavior.

Progress in blockchain is desirable, but...

SegWit has brought positive developments to the blockchain industry, solving some existing problems and opening up new opportunities. Nevertheless, potential drawbacks and challenges in the use of SegWit must be taken into account to ensure broad acceptance and sustainable development of the technology.


Although we have made every effort to carefully research and verify the information in this article, the blog posts are neither an offer nor a solicitation to buy or sell investment or other specific products and cannot substitute for personal advice from a financial, legal and/or tax advisor. The content in this post is for general information purposes and therefore does not constitute investment advice. No liability can be accepted for decisions made on the basis of information in this blog post.

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