SegWit Definition

“SegWit” is an abbreviation for “segregated witness”, which is the process whereby a
blockchain’s block size limit is increased by removing signature data from transactions. SegWit
was proposed in an attempt to address Bitcoin’s scaling problem.

Bitcoin’s scaling problems

The Bitcoin blockchain, by design, limits the block size to 1MB of transactions. In the early days
of the cryptocurrency, this wasn’t a problem. However, as the number of Bitcoin transactions
continues to increase, the 1MB block size cannot handle all the transactions that are sent each
minute.

As a result, many users have to wait for their transactions to be confirmed. This weighs down
the network and makes it increasingly inefficient. As the blockchain’s size grows, transaction
intensity rises. A hard capped block size in conjunction with a growing blockchain means the
transaction backlog expands exponentially. This in turn impedes the progress of Bitcoin’s original goal of being a peer-to- peer medium of exchange. Why would people use a currency that sometimes takes days to settle?

SegWit Removes the Digital Signature

Dr. Pieter Wuille suggested that the digital signatures of the transactions, which comprise 65%
of their size, be segregated from the transaction’s data– thus the phrase “segregated witness”.
SegWit removes the digital signature from the input and moves it to a structure towards the end
of a transaction, decreasing overall transaction size. The original section of the transaction
holds the sending and receiving data while the newly created “witness” part houses the scripts
and signatures.

SegWit Implementation

The original segment would be the same size, but the witness component would be considered
a quarter of its real size. Theoretically, block size could increase almost fourfold to just under
4MB.

The SegWit upgrade was implemented as a soft fork in August 2017. It comprises the first half
of the New York Agreement to address scaling Bitcoin’s blockchain. It kept the block size
constant at 1MB, but still decreased transaction size.