In the last few months, Litecoin’s price has gone from $4 a coin to over $30 a coin because of the adoption of Segregated Witness or Segwit for short. I knew Segwit was designed to help speed up transaction time and lower fees, but I had no idea how it worked and how in depth the program really was. In this article I will explain everything you need to know about Segwit, from the in depth processes of how a block works and how Segwit aims to change how transactions are being changed.

First off, Segwit was created to help shrink the size of transactions and therefore be able to fit more transactions into a single block, lowering the transaction time and mining fees that come along with paying with Bitcoin. A Block, which is what the Bitcoin algorithm creates every 10 minutes, controls everything from generating new Bitcoins to sending and receiving transactions. How does Segwit allow the Block to make new transactions? Every Block is responsible for processing transactions by acting as an accounting ledger for all the payments. Bitcoin miners are responsible for verifying each transaction and getting fees and newly generated Bitcoins as a reward. If you want to learn the basics of Bitcoin mining, I suggest you check out my “How Mining Works” article. The vast majority of each block is dedicated to generating the ledger, and since there are so many payments, a Block can’t fit every payment in it at once.

Because of this, miners verify the transactions in the ledger that are willing to pay the highest fees as a priority. So when someone makes a payment, it can take over two hours for a transaction in some cases, making Bitcoin to some people, not a viable way to pay for small items on a day-to-day basis. Segwit fixes this problem by essentially shuffling certain parts of the block around so more transactions can fit inside the block. There is a large part of the payment part of the Block called the Witness. If you picture the Block ledger as a hypothetical tax form, the Witness is a signature that verifies that your the one who made the tax payment. It is essentially an extra security measure to verify that you’re the one who made the transaction. Segwit wants to take the Witness and move it to the Block Header. All the Header is, is just a tracker to see if enough power was generated by the miners, making the block be seen as valid so that the rest of the block can go into effect.

Since the Witness is moved to the Header, this essentially doubles the amount of transactions each block can make from 1MB to 2MB which is huge for people who use Bitcoin as an everyday currency. So why has Litecoin, a smaller Altcoin, embraced this new technology but not Bitcoin? Well in order for a change to be made to the source-code of a cryptocurrency, there must be a certain number of miners who run the new code. This essentially gives the miners voting power over huge changes. More than 90% of Litecoin miners ran Segwit, which made it go into effect a few days ago. Only around 35% of Bitcoin miners are running Segwit though, which means that Bitcoin has a long way to go before it goes into effect. The debate on whether or not Segwit should be accepted or not has split the Bitcoin community into two factions, Bitcoin Core which embraces Segwit and Bitcoin Unlimited, which does not. I will explain both of these groups in depth on a later date. Another question I was asking myself was; If Bitcoin is the only cryptocurrency with transaction problems, then why would Litecoin be the first to adpot it? Well according to the Litecoin community, this is because Litecoin wants to make room in the transaction space in the Block for future innovations such as the Lightning Network. I hope that taught you some basics about Segwit and how it works. Overall it is a great edition for cryptocurrency and has sparked debate on the future of Bitcoin.

Citations

https://blockchain.info/charts/bip-9-segwit

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