Do you ever get confused by all the terms you come across in the crypto world? Not bad! There are hundreds of different concepts that you only encounter in this world. In addition to those terms, there are also thousands of different crypto coins and tokens. Some of those coins are suspiciously similar. Both in content and in name. For example, consider Ethereum (ETH) and Ethereum Classic (ETC). Or Bitcoin (BTC), Bitcoin Cash (BCH) and Wrapped Bitcoin (wBTC). Bitcoin Cash was created by SegWit. That is why it is also known as the ‘traditional Bitcoin’.
There is a difference between traditional Bitcoin and SegWit Bitcoin. Yet few people know that this difference exists. Let alone that they know what this difference even means. In this article I am going to explain to you what Segregated Witness (SegWit) is, how it works for Bitcoin, and what the difference between Bitcoin and SegWit Bitcoin is. I do all this in a simple way, so that it is understandable for both beginners and advanced users.
What’s the problem?
Almost everything arises from a problem. That also applies to SegWit. To better understand what this is, let’s dive a little deeper into the problem first. The solution is then much easier to understand. You will have noticed that Bitcoin runs into several problems. The blockchain has to contend with problems, of which the scalability is the greatest. The scalability problem makes it difficult for Bitcoin to scale up. FTX review is positive.
Every blockchain has a transaction time limit. This means that only X number of transactions can be processed per minute. Imagine that 100 transactions can be processed per minute. Then 200 transactions per minute come in. This means that half cannot be processed and will be queued. We call this queue the mempool.
Bitcoin can process an average of 7 transactions per second (TPS). Because Bitcoin is used more and more, it sometimes happens that the number of transactions that are done exceeds the limit. And that can cause problems.
For example, people who carry out a transaction have to wait longer before the transaction is validated. And often they also pay higher transaction costs. Fortunately, a technique was developed a while ago that can partly solve this problem, called Segregated Witness (SegWit).
What is Segregated Witness (SegWit)?
The number of transactions that can be processed is partly determined by the size of a transaction. Just think about uploading files to the internet. The moment you have photos that are all 1MB in size, you can (for example) only upload 10 photos per minute to the internet. But what happens if you compress these photos first, making them only 500kB in size? You can upload 20 per minute! That means you have doubled this number. Litecoin LTC is well known in crypto.
SegWit for blockchains
And that’s what happens at SegWit. It is a protocol that was designed by Pieter Wuille in 2015. This protocol ensures that the size of the transactions is reduced by adjusting the structure of the transactions. The SegWit removes the signatures from the transaction data and places them at the end of the transaction. And that frees up a lot of space. 60% of the transaction size consists of the digital signatures. Pieter Wuille felt that there was still a lot to be done here, and therefore decided to approach it this way.
Before Bitcoin used SegWit, a maximum of 1,000,000 bytes (1MB) could be put in a block. Once this limit was reached, no more new transactions could be added. Since SegWit is used, more weight can be put in the block. And that’s something that’s hard to understand. The weight of a block is different from its size. Through a mathematical trick, SegWit makes it possible for these blocks to store 4MB of transactions in a block. However, this almost never happens. You often see that blocks are no larger than 2MB. There are also different forms of SegWit. Think of Legacy, but mainly SegWit and Native SegWit (which is also called bech32). Read more about the difference between SegWit and Native Segwit here.