A major problem on the bitcoin blockchain is that transactions are limited per block. If more transactions are processed in a block, then the network cannot process this block because there is a limit. With the growing popularity of bitcoin, the number of transactions per block had to increase as well. One of the ways to get more transactions per block is the segwit.
The blocksize problem
The block size issue has been around for a while. The blocksize is a block of transactions (bundled) that is verified on the blockchain. The block size is limited. A larger block size means that more transactions can be processed per block per second. The larger block size prevents the network from crashing.
With bitcoin, all transactions are stored in a block. Every 10 minutes or so a new block is added to the blockchain. Each block contains a variety of transactions. These transactions are up to 1 Megabyte in size so the block will always be full of transactions up to 1 Megabyte. Users want a larger block because larger blocks give more space for more transactions. This allows more transactions per block to be stored and verified on the bitcoin blockchain. Now apporximately 7 transactions can be processed per second. This is far too little according to many users. So the block size needs to increase to be able to process more transactions.
What is segwit?
Segwit (segregated witness) was created by Pieter Wuille in 2015. The idea was to be able to process more and faster transactions on the bitcoin blockchain. Segwit does this by changing the structure of the data in a block. Because of this change, the blocks are a lot smaller so more transactions fit in a block. The bitcoin blockchain switched to Segwit in 2017. There was a lot of opposition to this update. Many miners were against Segwit because it has many disadvantages.
As we know, every bitcoin transaction has a digital signature. This signature is required to send the bitcoin from A to B. The digital signature verifies that it is you who has access to the bitcoin being sent. The digital signature is used to verify the authenticity of the bitcoin being sent. This digital signature does take up a lot of space in the block. Almost 50%-60% of the transaction takes up digital signature data. Segwit separates the bitcoin transaction data and the corresponding digital signature data. This makes the transaction smaller and more transactions will subsequently fit in a block allowing more transactions to be processed per second.
Blocksize increased: second layer solutions
The Segwit increases the block size limit in the blockchain to a maximum of 4MB. By not counting the digital signature data, more transactions can be included in a block. This makes second layer solutions possible and improves scalability. The Lightning network is an example where scalibility is improved. If we look at the blockchain, we see that the Segwit is being used more and more.
Transaction malleability
As explained above, digital signatures are transmitted along with the transaction. This allows you to verify the authenticity of a transaction. This is also called transaction malleability. With Segwit, transactions no longer rely on digital signatures to verify their authenticity.
Pros of Segwit
- The main advantage of Segwit is that it increases the available capacity of a block. A block now fits four times as much data as it would without Segwit. This has all to do with the fact that the data concerning the digital signature is not sent along in a transaction.
- Transaction costs are lower: this is because more transactions fit into a block.
- More opportunities for developers: As the bitcoin blockchain has become more scalable through Segwit, more developers can use the blockchain. This will make the bitcoin blockchain much more accessible to developers. New and innovative developers will come up with new solutions and techniques to improve the blockchain.
Cons of Segwit
- It is not a long-term solution: there are many developers who feel that the Segwit is only a short-term solution for the scalability of the bitcoin blockchain. They feel that Segwit is insufficient to address the problems of blocksize. They feel that bigger and more fundamental changes are needed.
- Not all nodes are using Segwit. A large majority do not yet use Segwit. Miners do not like the Segwit technique either..
The Segwit has been around for a while and has been used for a number of years. Will the Taproot update make the Segwit irrelevant? I don't think so, because the Segwit was a start of two layer solutions like the lightning network. Also, the Segwit can be further developed so that the Segwit becomes more efficient. I also think that it will improve the blockchain if more innovative updates are introduced on the blockchain.
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