Segregated witness, or more commonly SegWit, is an update to the bitcoin software with the goal to fix specific issues on the network. SegWit was developed by Bitcoin Core’s long-standing developing team.
At present, Bitcoin Core is the most popular bitcoin reference client and it is used the majority of the businesses in the industry.
At first, this update aimed to fix the transaction malleability problem, a known weak spot in the bitcoin software. It has been exploited several times before so it really needed some fixing, though it’s not the most damaging to the users.
But SegWit offers more than just fixing that weak spot. It has also been considered to fix bitcoin’s scalability problem, which has been bugging the community for many years.
SegWit vs. Scalability Problem
Basically, SegWit increases bitcoin’s block size limit, enabling the implementation of a second layer of solutions for further enhancements.
The central problem underlying bitcoin’s scalability issue is its block size. The blockchain is made up of these consecutive blocks containing data about transactions. The problem is that the 1-megabyte limit of each of bitcoin’s block isn’t enough for it to handle hundreds of transactions all at once.
As the size of the blockchain network grows, more and more transactions are being done. And because of bitcoin’s scalability problem, users sometimes have to wait until their transaction gets confirmed. Sometimes they have to wait for hours, or even days.
1) It enables an increase in the block size limit. From 1mb, the block size grows to 4mb, which is the absolute maximum, while the actual block size will depend on the network conditions.
According to experts, it would be in the range of about 2 to 2.1 megabytes right after SegWit’s activation.
2) Solving the malleability problem also gets rid of what used to be a major barrier to implementing second-layer solutions on top of the network. One of those solutions is the proposed Lightning Network, which is expected to grant a massive increase in the network’s capacity by moving the bulk of the transactions off-chain for quicker processing.
Some have pointed out that SegWit in its purest form wouldn’t be able to solve the problem. According to them, the increase in the block size would not still be enough to meet the (continually) growing needs of the network.
There’s also a political side to it and this makes things more difficult to handle. A huge number of people tinkering with SegWit are also under the employment of a company called Blockstream, which have sidechain solutions as its primary product.
According to some in the community, this fact creates a conflict of interest since the developers are given rewards for blocking attempts at increasing the block size. If bitcoin’s block size doesn’t increase, there’d be higher demand for sidechain solutions like the Lightning Network.
There’s also the matter of ideology. Ideological arguments against SegWit point out that it couldn’t provide enough scalability without sacrificing some of the network’s decentralization, which by far is one of the most remarkable and advantageous aspect of the technology.