Cryptocurrency exchange BitMEX added support for native segregated witness (SegWit) addresses for Bitcoin (BTC) withdrawals, which lets users pay lower transaction fees.

According to an announcement on Dec. 12, BitMEX now allows its users to withdraw Bitcoin to Bech32 addresses, the one that natively supports the segregated witness standard.

Bitcoin address formats

As the announcement explains, the Bitcoin network currently supports three address formats. The first one — Bitcoin’s original address format — is pay to public key hash (P2PKH), which starts with a 1.

The second format is the pay to script hash (P2SH), which allows users to send Bitcoin to an address secured through a script without knowing details about it — such as a multi-signature wallet. This is the kind of address to which BitMEX’s users deposit their funds. P2SH addresses start with a 3.

Lastly, the Bech32 format — also called the native SegWit format — starts with bc1 and allows users to take full advantage of segregated witness scalability, higher efficiency and lower fees. The announcement reads:

“The key advantage of Bech32 addresses is that transaction fees can be saved when spending Bitcoin, which was already sent to a Bech32 address. Therefore this upgrade will not directly result in fee savings when customers withdraw from BitMEX, however in the next transaction, when the bitcoin already withdrawn from BitMEX is spent again, our customers may benefit from lower transaction fees.”

BitMEX also explains that, when spending from an address that is not in the Bech32 format, the user adds around 20 bytes of data to the transaction. The lack of this data in native SegWit transactions saves fees and allows the network to scale more. Overall, native SegWit spends save about 37% compared to traditional transactions and 17% compared to non-native SegWit transactions.

What is SegWit

SegWit, an update implemented in August 2017, protects against transaction malleability and increases block capacity by separating the data required to check transaction validity (witness) from the list of transaction inputs.

SegWit also added a weight parameter that limits the block size to 4 million weight units, which allowed blocks that are larger than 1 MB without a hard fork. Furthermore, this update was the last change needed to implement the Lightning Network.

The next wallet upgrade planned by BitMEX is enabling non-native SegWit support on its P2SH addresses. The announcement reads:

“As explained above, SegWit can result in significant blockweight savings of around 25% to 40%, however in the case of BitMEX, the savings will be even higher. A BitMEX withdrawal is a 3 of 4 multi-signature P2SH transaction. [...]. The benefits of applying the witness discount to these large transactions is far greater than for typical non-BitMEX transactions. Therefore BitMEX would benefit from a blockweight saving of around 65% by adopting SegWit. ”

SegWit support is ever increasing. As Cointelegraph reported in November, major global crypto exchange Bitfinex has also added support for Bitcoin Bech32 addresses.