Scaling Bitcoin is usually the number one concern for anyone that is serious about Bitcoin mainstream adoption. Although price stability and network sustainability are also pressing issues, the Bitcoin network is currently reaching a critical point in which transactions are reaching for the block size cap. Its not unusual for blocks to be almost full, as Blockchain.info stats reveal.
Segregated Witnesses, or Segwit for short, is one of the most popular proposals to increase Bitcoin’s transaction capability. It was put forward by the Bitcoin Core development team and it also has the benefit of dealing with other issues like transaction malleability.
Unlike a block size increase, which is also a popular option among the Bitcoin community, Segwit does not require a hard fork to take place and can instead be activated with a soft fork. What this means is that, even if some members of the network don’t update their software, Segwit will still work as intended. A hard fork, however, would cause miners that don’t update to work on a invalid blockchain, splitting the network in two like the recent Ethereum Classic scenario.
Although a soft fork can be seen as a less intrusive option, it also has the problem of not allowing the minority to choose its own path, meaning that even if members of the network don’t agree with the soft fork they will have to get used to it or leave the network. While a hard fork allows miners to remain on the same chain with the old parameters.
So what is Segwit anyway? As we’ve mentioned, Segwit stands for Segregated Witnesses. In the Bitcoin blockchain, transactions are basically data. That is why blocks can get full, because the amount of data from transactions can amount to the allowed 1MB of size in each block. The data contained in each transaction is the sender, receiver and a digital signature, referred to as the “witness”. What segwit does is remove this data from the transaction in order for it to be smaller. The witness data is not removed from the network completely, but is instead separated from its transaction and moved into what is called an extended block , allowing blocks to contain more transactions than the current limit, roughly the double.
In order for Segwit to be approved, 95% of the nodes in the network must signal their approve, usually through the use of the Bitcoin Core latest version. Although Segwit has gotten alot of attention recently and its approval rate quickly spiked to 23% on the first week, the activation rate has stagnated since, currently sitting as 26%. Given the low adoption rate, it is possible that Segwit never gets implemented into Bitcoin.
Another cryptocurrency, however, is following in the steps of Bitcoin and proposing a segwit activation on its own blockchain: Litecoin, the 5th largest cryptocurrency in marketcap and a well-known “Bitcoin clone” that is widely used. Segwit will have the same effect on Litecoin as it would have omn Bitcoin. However, a smaller 75% activation threshold is required for the soft fork to be activated. The Segregated Witness soft fork will start signalling on the 28th of Janurary, 2017.
“I’m proud of the Litecoin dev team! Now let’s upgrade and get SegWit activated!” said Charlie Lee, creator of Litecoin
Users can signal their approval through Litecoin Core 0.13.2, a major release featuring many protocol level improvements, code optimizations, the ability to roll out several soft forks at once, and of course Segwit.