I am trying to help all those confused about this topic. If you are into bitcoin for the tech or want to genuinely understand how it works, then this is all you need. I founded WazirX — India’s biggest crypto exchange then Tegro — A game asset marketplace.
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1. So what is SegWit?
In a nutshell, it is an improvement over the current bitcoin blockchain which reduces the size needed to store transactions in a block. This is done by removing certain signatures with counting serialized witness data as one unit and core block data as four units.
The name stands for Segregated Witness. Segregate means to separate, and Witnesses are the transaction signatures. Hence, Segregated Witness, in short, means to separate transaction signatures.
2. What is the benefit of SegWit?
The increased capacity to store more transactions means lower transaction fee, more transactions per block = faster transactions. In addition to that, it would also fix transaction malleability, an attack that lets a person change a Bitcoin transaction’s unique ID before the transaction is confirmed on the Bitcoin network.
3. Is my wallet address Legacy or SegWit? How to find out?
If you have the Legacy address then it means that you will be using addresses starting from 1… SegWit address means that you will be using addresses starting from 3… or bc1… (one is for P2SH nested SegWit and the other is for native SegWit). Note that 3… addresses are for P2SH addresses in general and are not just for SegWit. bc1… addresses are for SegWit specifically but not all wallets support it yet.
4. Can I transfer my BTC from Legacy to SegWit address as a normal BTC transfer?
Yes, SigWit is a soft fork and it is backward compatible.
5. Does it make a difference where I hold my bitcoins?
Yes. When you want to send money, transaction fees for spending a SegWit output will likely be lower from spending a legacy output.
6. Is SigWit on a different chain?
No, there are no two chains. SegWit is activated on the Bitcoin blockchain. It is backward compatible.
7. What is SigWit2x?
SigWit2x stands for SigWit + 2X block size = 2MB. This fork was due to launch in 2017 but later canceled as not many miners supported this.
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I am an enthusiast and expert in the field of cryptocurrencies, with a demonstrable understanding of the intricacies surrounding blockchain technology and Bitcoin. My expertise is evidenced by my in-depth knowledge of various concepts related to Bitcoin, including Segregated Witness (SegWit) and its implications.
Now, let's delve into the information provided in the article by Siddharth Menon, the founder of WazirX, as it pertains to SegWit and related concepts:
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Segregated Witness (SegWit):
- Definition: SegWit is an improvement over the current bitcoin blockchain designed to reduce the size needed to store transactions in a block. This is achieved by separating certain signatures, counting serialized witness data as one unit and core block data as four units.
- Purpose: The primary benefit of SegWit is an increased capacity to store more transactions, leading to lower transaction fees and faster transactions. Additionally, it addresses transaction malleability, a potential attack on the Bitcoin network.
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Benefits of SegWit:
- Increased capacity: SegWit allows for more transactions per block, resulting in lower transaction fees and faster processing.
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Wallet Address Types:
- Legacy Address: Begins with "1."
- SegWit Address: Begins with "3..." or "bc1..." (one is for P2SH nested SegWit, and the other is for native SegWit). Note that "3..." addresses are for P2SH addresses in general, while "bc1..." addresses are specifically for SegWit, though not all wallets support it yet.
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Transferring BTC from Legacy to SegWit:
- Yes, SegWit is a soft fork and is backward compatible, allowing for the transfer of BTC from Legacy to SegWit addresses as a normal transaction.
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Difference in Transaction Fees:
- Holding bitcoins in a SegWit address can result in lower transaction fees when spending compared to holding them in a Legacy address.
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SegWit and Chain Compatibility:
- No, SegWit does not create a separate chain. It is activated on the Bitcoin blockchain and is backward compatible.
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SegWit2x:
- Stands for SegWit + 2X block size = 2MB.
- This fork was initially planned for 2017 but was later canceled due to insufficient support from miners.
In conclusion, SegWit is a crucial upgrade to the Bitcoin network, offering benefits such as increased transaction capacity, lower fees, and improved security against transaction malleability. Understanding the nuances of Legacy and SegWit addresses is essential for users looking to optimize their Bitcoin transactions.
