What is SegWit (Segregated Witness)?

Segregated Witness (SegWit) is one of the most impactful upgrades in Bitcoin’s history. Activated in 2017, SegWit changed how Bitcoin transactions are structured, primarily by separating signature data from transaction data. This solved a critical issue known as transaction malleability and paved the way for the Lightning Network and other future innovations. SegWit also increased block size capacity

Despite its benefits, SegWit was highly controversial.

This article explains how SegWit works, its technical impact, and the key lessons learned from its activation.

A SegWit address starts with either “3…” or with “bc1…..”. It was activated in Bitcoin Core in 2017. Today over 90% of transactions are using SegWit.

Fixing Malleability

One of SegWit’s most important contributions was fixing transaction malleability - a vulnerability that allowed transaction IDs (txids) to be changed before confirmation.

How it worked before SegWit

A Bitcoin transaction contains several components, including:

• Inputs (where the bitcoin is coming from)
• Outputs (where the bitcoin is being sent)
• Signatures (proof that the sender authorized the transaction) Before SegWit, signatures were included in the transaction data, which meant that an attacker could alter the signature data slightly without changing the transaction’s validity. This changed the txid (transaction identifier), which could cause problems for protocols that relied on unconfirmed transactions—like the Lightning Network.

How SegWit solved the Problem

SegWit separated signature data from transaction data, moving it to a new section called the Witness. Since the txid is now calculated without the signature data, it can no longer be altered after the transaction is signed.

✅ No more txid manipulation

✅ Safer unconfirmed transactions

✅ Enables the Lightning Network

SegWit enables the Lightning Network

The Lightning Network is a second-layer protocol that enables instant, cheap, and scalable Bitcoin transactions. However, before SegWit, Lightning was impractical due to the transaction malleability issue.

Since Lightning relies on unconfirmed, pre-signed transactions, malleability attacks could disrupt payment channels and cause potential fund loss. By making txids immutable, SegWit provided the foundation for Lightning payments.

Without SegWit, Bitcoin’s ability to scale efficiently would be severely limited.

How did SegWit Increase the Block Size?

Although SegWit was not explicitly designed as a block size increase, it effectively increased transaction throughput by introducing block weight instead of block size.

What is Block Weight?

Prior to SegWit, Bitcoin blocks were limited to 1MB in size (Around 1,650 transactions). SegWit introduced block weight, a new method of measuring block size, that allows around 2,700 transactions per block:

• Non-witness data (transaction data) → Counts 4 weight units per byte
• Witness data (signatures, scripts) → Counts 1 weight unit per byte The maximum block weight is 4 million weight units, meaning blocks can now fit up to 4MB worth of transactions, though most remain between 1.5MB and 2MB on average.

This also lowered the transaction fees through less competition for block space

This upgrade allowed Bitcoin to scale without requiring a hard fork.

SegWit’s New Script Types

SegWit introduced two new ways to send and receive bitcoin:

1. Pay-to-Witness-Public-Key-Hash (P2WPKH)

   • Similar to the legacy Pay-to-Public-Key-Hash (P2PKH) format
   • Signature data is moved to the Witness
   • More efficient and cheaper than legacy transactions

2. Pay-to-Witness-Script-Hash (P2WSH)

   • A SegWit version of Pay-to-Script-Hash (P2SH)
   • Used for multisig and complex scripts
   • Reduces blockchain bloat by keeping script data in the Witness

Both formats help reduce fees and increase transaction efficiency.

Whati is Bech32?

SegWit also introduced Bech32, a new address format that improves readability and efficiency.

Bech32 vs. Legacy Addresses

• Bech32 addresses start with “bc1”
• They are more space-efficient → Lower fees
• They have built-in error detection
• They are fully SegWit-compatible Not all wallets and exchanges have adopted Bech32, but its advantages make it the preferred format for optimal fee savings and network efficiency.

SegWit History and Activation

SegWit was first proposed in 2015 by Pieter Wuille, but its activation was highly controversial.

Miners and some businesses opposed it, fearing a loss of influence. A group of large Bitcoin companies pushed for a hard fork (SegWit2x), which would have increased the block size limit to 2MB, but this was widely rejected by node operators.

SegWit was activated through BIP 148, a User Activated Soft Fork (UASF) in 2017.

Why did Node Operators oppose SegWit2x?

• A hard fork would have split Bitcoin, creating uncertainty and division.
• Larger blocks would increase centralization, as running a full node would become more expensive and not affordable for everyone anymore.
• The process was seen as an attempted corporate takeover of Bitcoin. Ultimately, Bitcoin remained decentralized, and SegWit was activated without a hard fork.

FAQ

How do different Bitcoin address types look like?

• Legacy addresses start with “1” (P2PKH)
• Wrapped SegWit addresses start with “3” (P2SH-P2WPKH)
• Native SegWit addresses start with “bc1” (P2WPKH, Bech32) If your Bitcoin address starts with “3” or “bc1”, you are using SegWit.

Can I Send BTC to a SegWit Address?

Yes. Legacy, SegWit, and Native SegWit addresses are fully compatible with each other. You can send BTC from any address type to any other without issues.

What’s the Difference between SegWit and Native SegWit?

SegWit (P2SH-P2WPKH, “3” address):

• More widely supported across exchanges and wallets

• Lower fees than legacy, but higher than Bech32 Native SegWit (Bech32, “bc1” address):

• Lowest possible fees

• Most efficient use of block space

• Less supported by some older wallets

If you want maximum compatibility, use SegWit (P2SH).

If you prioritize the lowest fees, use Bech32 (Native SegWit).

Takeaways from SegWit

The battle over SegWit proved that Bitcoin is not controlled by anyone - not miners, developers, or corporations.

• Bitcoin is dezentralized → The community rejected SegWit2x and kept Bitcoin resistant to corporate influence.
• Hard Forks are not acceptable in Bitcoin → SegWit activated without disrupting Bitcoin.
• SegWit paved the way for future upgrades → Lightning Network, Taproot, and improved scalability.

The Impact of SegWit

• Lower transaction fees
• Increased transaction throughput
• Higher miner revenue due to more transactions per block SegWit is now used in nearly all Bitcoin transactions and has proven to be a massive success in improving Bitcoin’s scalability and efficiency.

Final Thoughts

• SegWit fixed transaction malleability and enabled the Lightning Network
• It increased Bitcoin’s effective block size through a soft fork
• It introduced new transaction types and Bech32 addresses