Overview

Segregated Witness (SegWit), formally known as Segregated Witness (Consensus layer), is an implemented soft fork change in the transaction format of bitcoin.

SegWit had Bitcoin Improvement Proposal number BIP 141. The declared purpose was to prevent nonintentional bitcoin transaction malleability; allow optional data transmission; and to bypass certain protocol restrictions (such as the block size limit) with a soft fork. Segregated Witness was activated on 24 August 2017.

It was also intended to mitigate a blockchain size limitation problem that reduces Bitcoin transaction speed. It does this by splitting the transaction into two segments, removing the unlocking signature ("witness" data) from the original portion and appending it as a separate structure at the end. The original section would continue to hold the sender and receiver data, and the new "witness" structure would contain scripts and signatures. The original data segment would be counted normally, but the "witness" segment would, in effect, be counted as a quarter of its real size.

Block size limit

Bitcoin is a cryptocurrency, a form of currency using cryptography to keep transactions secure. A collection of bitcoin transactions prefaced by a block header, protected by proof of work, and recorded on a network of computers is called a "block". All blocks are tied together sequentially by using a cryptographic hash on the previous block and storing its output in the next. This forms a blockchain.

Each block contains information about who sends and receives a given unit of bitcoin (a transaction), as well as the signature(s) that approve each transaction. Originally, there was no limit to the size of blocks. However, this allowed malicious actors to make up fake "block" data that was very long as a form of denial-of-service attack (DoS attack). These fake blocks would be detected, but doing so would take a very long time, slowing down the whole system. Therefore, a block size limit of 1 MB was introduced.

Scalability and malleability

The current Bitcoin blockchain design is regarded as having two shortcomings: scalability and malleability.

Scalability

A new block is added to the chain at random intervals, averaging, by design, ten minutes (proof of work causes this delay). Together with the limit on block-size, this limits the number of transactions that can be processed in a given time. Some sites work around this problem by using "off-chain payments" conducting transactions without writing them to the blockchain which involves various trade-offs regarding trust and transaction finality. Others have proposed changes to Bitcoin that would reform the block format in a backward-incompatible way.

For example, FlexTrans (Flexible Transactions) would make transactions smaller by changing how they are described to a "tag" system, allowing more transactions per block. This is not compatible with systems that do not upgrade.

Malleability

A transaction uses unused outputs from a previous transaction(s) known as unspent transaction outputs (UTXO). This results in a chain of related transactions linked by their transaction identifier. However, it is possible for someone to change (mutate) unconfirmed bitcoin transactions without making them invalid, which changes the transaction's identifier, making child transactions invalid (i.e., link between transactions are broken).