What is technology named Segwit and why is it so important?



SegWit, known also as soft fork, is a process, which enlarges the size limit of the blockchain block by removing signature data from transactions. When some of the transactions are removed, it frees up the capacity and it is possible to add more to the block. To segregate means to separate and in this case, it means separation of the signature from transaction. It is a quality, that is implemented in the source code of Bitcoin core, which is however not active and there was a vote about whether to activate it or not. If SegWit is not activated by the half of November 2017, it will be no longer possible to activate it. Based on the difference in the vote, there was a split of the Bitcoin site and creation of the new cryptocurrency called Bitcoin Cash.

What Is SegWit For?

As has already been mentioned, SegWit is used for segregation of the signature part of the transaction so it becomes a separated unit. This segregation serves several purposes, for example:

●      Increase of the block capacity through the change of algorithm which limits its size.

If transactions will not use SegWit update, there will be no change in the block size. The more transactions use SegWit, the cheaper the space in the block is, and the effective size of the block increases. Another reason to activate SegWit is:

●      Scalability and decreasing the complexity of transaction verification and signature.

Block without activated SegWit are 1 MB big. Part of the incoming transaction is a script, that serves as a signature. This signature is needed to verify the transaction. Because the script contains a large amount of data, it takes rather large amount of the block capacity. It is possible to make changes in the script, so the resulting imprint of the transaction is different and the at the same time the new signature still valid.

Scalability does not solve only the current situation, it is a building stone for future deployment of technologies such as Lightning network. Lightning Network creates two-way transaction channels, through which the transactions run significantly faster and cheaper. The concerned parties sign the transaction, but they do not send it to the site. Only the last version which closes the channel is sent to the site. For implementation of the Lightning Network, it is important to solve the transaction compatibility, that is brought by the SegWit.