SegWit

SegWit, short for Segregated Witness, is a significant Bitcoin protocol upgrade that was activated in August 2017. It changes how data is stored in a transaction by separating (or “segregating”) the digital signature (witness data) from the main transaction information. This makes each transaction smaller in size, allowing more transactions to fit into a single block. The upgrade was proposed by Bitcoin developer Pieter Wuille in 2015 as a solution to multiple problems affecting Bitcoin’s scalability and functionality.

How Does SegWit Work?

Before SegWit, every transaction in Bitcoin included:

• Inputs (where the coins come from)
• Outputs (where the coins are going)
• Signatures that prove ownership and authorize the transaction

The signature data could take up to 60% of a transaction’s size, limiting how many transactions fit into a 1 MB block. SegWit moved the signature data to a separate structure, outside the base block, which:

• Reduced the size of each transaction
• Freed up block space
• Enabled the use of a new unit called “block weight” (up to ~4 MB theoretical capacity)

This change increased Bitcoin’s transaction throughput without raising the official block size limit.

Key Benefits of SegWit

• Lower transaction fees:
  Smaller transactions = lower costs
• Higher throughput:
  More transactions per block
• Fixes transaction malleability:
  Makes it possible to build second-layer solutions like the Lightning Network
• Improved scalability:
  Paved the way for future upgrades
• Better security:
  For multi-signature wallets

It was a backward-compatible soft fork, meaning older non-SegWit nodes can still interact with the network.

What Is Transaction Malleability?

Before SegWit, parts of a transaction could be altered without changing its outcome, which caused problems for protocols built on top of Bitcoin. This “transaction malleability” made it hard to track unconfirmed transactions and prevented complex smart contract systems.

SegWit fixed this issue by excluding signatures from the hashed data that determines the transaction ID.

SegWit Adoption

At first, adoption was slow, as wallets, services, and exchanges had to update their systems. But over time, SegWit usage has grown steadily, and by 2025, over 80% of Bitcoin transactions are SegWit-enabled.

Wallets like Ledger, Trezor, Electrum, and platforms like Binance and Kraken now support SegWit addresses.

Legacy vs. SegWit Addresses

SegWit introduced new Bitcoin address formats:

• Legacy addresses:
  Start with “1” (older format)
• SegWit addresses:
  Start with “3” (P2SH wrapped) → partial SegWit
• Start with “bc1”:
  (Bech32) → native SegWit (smaller fees)

Native SegWit (“bc1”) addresses are most efficient and recommended for lower fees.

Final Thoughts

SegWit is one of Bitcoin’s most important technical upgrades. By restructuring how transactions store data, it improved scalability, reduced fees, and enabled new technologies like the Lightning Network. While invisible to most end-users, SegWit plays a major role in Bitcoin’s long-term evolution and usability.