What is Segregated Witness (SegWit)?

Segregated Witness (SegWit) is a protocol upgrade for Bitcoin that was activated in August 2017. It aimed to address two key issues:

• Transaction Malleability: SegWit fixes the issue of transaction malleability, where minor changes to transaction data could disrupt the blockchain. It does this by separating the digital signature (witness data) from the transaction data. This prevents anyone from modifying the transaction ID (txid) after it has been signed, ensuring transactions cannot be tampered with.
• Block Size Limit: By separating the witness data, SegWit increases the block size capacity, allowing more transactions to fit into each block. This improves transaction throughput and reduces fees by enabling faster processing times.

How SegWit Works

SegWit works by separating each transaction into two parts:

1. Transaction Data: Contains the sender and receiver addresses.
2. Witness Data: Contains the digital signature verifying the sender.

The witness data is removed from the main transaction block and stored separately in an extended block. This reduces the size of each transaction, allowing more transactions to fit within the same 1MB block limit.SegWit also introduced a new transaction format that is more efficient than the previous format, further reducing transaction sizes.

Key Benefits of SegWit

• Increased Transaction Capacity: By separating witness data, SegWit effectively increased Bitcoin's block weight limit from 1 MB to 4 MB, allowing more transactions per block.
• Fixed Transaction Malleability: Separating signatures from transaction data prevents anyone from modifying the txid after signing, resolving the malleability issue.
• Enabled Layer 2 Scaling Solutions: SegWit's transaction malleability fix and separation of witness data were essential for enabling the Lightning Network, a layer 2 scaling solution for faster and cheaper transactions.
• Introduced Bech32 Addresses: SegWit introduced a new address format called Bech32, which is more efficient and has built-in error detection.