Segregated Witness (SegWit) reached a new all-time high (ATH) last week and adoption is now above 48.1%. Nearly half of all bitcoin transactions are now using this protocol upgrade.
SegWit, an acronym for Segregated Witness, is used to allow the development of second layer scalability solutions. Several advantages have been introduced as a result of this upgrade, listed below in order of importance:
- Malleability Fixes
- Linear scaling of sighash operations
- Signing of input values
- Increased security for multisig via pay-to-script-hash (P2SH)
- Script versioning
- Reducing UTXO growth
- Efficiency gains when not verifying signatures
- Block capacity/size increase
- Moving towards a single combined block limit
The eighth point is definitely the most famous, but it is by no means the most important.
Bitcoin: SegWit is fundamental
This update is designed to make Lightning Network more efficient. It also introduced a slight increase in the size of the blocks by increasing the number of transactions that the network is able to insert into each block.
Unfortunately, there are still too many wallets that have not been upgraded to SegWit despite the fact that the protocol was released almost two years ago. One of the key factors that will favour the adoption of SegWit is the rise in fees. During the last year and a half, as a result of the bearish market, fees have remained relatively stable and indeed the adoption of SegWit remained at a standstill.
To prove this, it is sufficient to look at the data of May 2019 when the growth of bitcoin fees had gone from about $0.55 to about $2.36 and led to an increase in the number of transactions based on SegWit from 40% to 45% in just 18 days.
The hope is that this steady growth in the number of SegWit-based bitcoin transactions will continue in the coming months.
SegWit for reducing network fees
The parallel use of SegWit and transaction batching is the best short-term solution to curb the growth of mining fees.
Batching is a method used to place as many transactions as possible in a single block. By adopting this technique more transactions are included in a single large tx, this leads to a decrease in network fees. This is a fundamental operation because it saves space and minimises costs.
Some exchanges like Binance and Kraken have long since adopted batching to reduce fees, while Coinbase is still working on it.