SegWit transactions on Bitcoin reached a new all-time high (ATH) yesterday. Adoption is now at 55%. For several months now, more than half of bitcoin transactions have been using this protocol upgrade.
After a decline at the end of August, the number of transactions using SegWit grew steadily in September until it resulted in yesterday’s new ATH.
Bitcoin: the importance of transactions with SegWit
SegWit is used to facilitate the development of scalability solutions on a second layer. This upgrade has introduced multiple benefits to bitcoin transactions, which are 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, although it is not the most important at all.
This protocol, introduced two years ago, requires less data to process a transaction compared to the classic format that has block size limited to about 1 MB and a network speed of about 4 transactions per second on average.
In addition, SegWit has introduced a slight upgrade of the block size, which as reported by Diar, is constantly increasing, reaching an average size of 1.2 MB per block. According to some studies, if the adoption of SegWit reached 100%, it would be possible to increase the throughput of the bitcoin network by a factor of 4.
Unfortunately, too many wallets and exchanges have still not upgraded to SegWit despite the fact that it has been released for almost two years.
In order to see whether a service, exchange or wallet has implemented SegWit, it is enough to look at how the BTC address starts: the SegWit addresses all start with the number 3 instead of the classic 1.
SegWit to limit the growth of fees
One of the key factors that will encourage the adoption of this protocol is the growth of fees. During the last year and a half, due to the bearish market, fees have remained almost stable and the adoption of SegWit has been stagnant.
The parallel use of SegWit and transaction batching is the best short-term solution to limit the growth of fees paid to miners.
Batching allows placing as many transactions as possible in one block. By adopting this technique more transactions are actually placed in a single large tx, this leads to lower network fees. This is a fundamental step as it saves space and minimises costs.
Binance is also working to implement it
How about end of q1 2020? 👀
— CZ Binance (@cz_binance) October 2, 2019
Earlier this week, Binance CEO Changpeng Zhao (“CZ”) confirmed on Twitter that the exchange is working to implement SegWit. The protocol is expected to be in place by the end of Q1 2020.