Segregated Witness (SegWit) for Bitcoin Activated: How Things Will Change

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by Maria Konash · 4 min read
Segregated Witness (SegWit) for Bitcoin Activated: How Things Will Change
Photo: Jordan Richmond / Flickr

Processed block 481,824 brought debates over the code upgrade to an official close, enabling users to take advantage of the long-promised SegWit technology.

Following the continuous debates among the bitcoin industry and the mining community about Segregated Witness’ (SegWit) implementation  since 2016, as wsignaling and waiting periods, the SegWit soft fork has finally been officially activated on the Bitcoin network on August 23 having processed block 481822.

The Bitcoin Network finally locks in Segwit activation. This paradigm shift is long overdue and I think the price of bitcoin post SegWit will increase to $5,000.”

For the context, accidentally or not, total cryptocurrency market capitalization hit above $150B for the first time the same day Segwit’ activated.

Segwit’s activation brings a few key changes or improvements in the bitcoin network.

Firstly, these are the rearrangement of data storage mechanisms in bitcoin blocks, and the significant optimization of bitcoin blocks, which will likely decrease bitcoin block sizes by 75 percent according to several Bitcoin Core developers. The size of transactions will decrease substantially and, subsequently, fees will be much cheaper, as the activation of SegWit replaces a large chunk of data that is traditionally kept within bitcoin transactions. More concretely, SegWit activation means that Bitcoin’s block size limit is replaced by a block “weight” limit, which allows for blocks to increase to up to 4 megabytes in size.

Maybe even more highly anticipated than an increased block size, second-layer technologies like the Lightning Network or Merkelized Abstract Syntax Trees (MAST), will be more easily built on top of Bitcoin, due to Segregated Witness. After rigorous testing and research, major bitcoin startups could utilize Lightning commercially and possibly offer micropayments services which may be able to effectively process bitcoin payments with more flexibility.

Perhaps most importantly, relocating witness inputs from the transaction hash, SegWit removes transaction malleability, a bug that’s been the primary roadblock for many bitcoin projects. Needless to say, that it is a crucial security improvement for bitcoin hardware wallets.

All in all, Segwit, being Bitcoin’s biggest protocol upgrade to date, introduces a whole new data structure, which changes the appearance of Bitcoin blocks for upgraded nodes — though non-upgraded nodes should continue to function as normal.

While SegWit looks to enable a bright future for bitcoin, it still presents some risks for users.

The first one is reorganization risk, which depends on miners enforcing the new rules and can actually be applied to all soft forks. There were some cases when soft forks caused some network disruption, but the risks do seem limited this time around.

Peter Todd, Blockchain consultant, sees things the following way:

I suspect that the reorg risk is relatively low for full nodes with SegWit. Fortunately Bitcoin Core includes a lot of improvements to speed that older and alternative implementations don’t have, so there’s a good chance basically all miners are running Bitcoin Core with only small modifications to non-consensus code, if any.

Some (untested) services may fail shortly after SegWit activation, as they might have integrated SegWit support partially. However, these kinds of issues are always easy to fix.

And last but not the least, the first couple of hours following activation could open a small window for advanced types of miner attacks, resembling 51% attacks. However the costs to perform this attack increase for every block that is found after activation, to the point where the attack becomes infeasible within a couple of hours. Still, it is probably wise not to send huge amounts of bitcoin to SegWit addresses straight after the activation, and to wait at least a couple of hours or maybe days instead.

Over the course of the next few weeks users will be waiting to see if the SegWit protocol actually produces what developers claimed it would and if it really increases transaction throughput and makes fees cheaper. As Segwit activated Jeff Garzik, Segwit2x developer, has informed the bitcoin community about the next steps to follow:

As of this writing, we continue to have over 90% agreement from miners to move forward with Segwit2x. Segwit2x is officially locked in, and the plan is working.

During this quiet period, it will be easy to forget about Segwit2x as not much is expected to happen.

According to the developers behind Segwit2x, it is planned to be activated as soon as block 494 784 is processed.

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