SegWit (Segregated Witness) is a Bitcoin soft fork upgrade activated in August 2017. It separates a transaction’s signature data, known as the witness, from the main body of the transaction and stores it separately. This fixed transaction malleability, effectively increased block capacity and lowered fees. Addresses starting with bc1q are native SegWit addresses.
What Problems Does SegWit Solve?
The first problem is transaction malleability. Before the upgrade, the transaction hash was calculated over the entire transaction, signatures included, and a third party could slightly alter a signature’s encoding without invalidating it. A transaction could therefore end up with a different hash before it was confirmed, causing errors in systems that tracked deposits and withdrawals by hash. SegWit moves signatures out of the hash calculation, so the transaction hash can no longer be changed.
The second problem is block capacity. SegWit replaced the 1 MB block limit with a limit of 4 million weight units, counting witness data at 1 unit per byte and other data at 4 units per byte. A block of the same size can hold more transactions, and old nodes were not made invalid.
Why Does SegWit Lower Fees?
Bitcoin fees are calculated in virtual bytes (vbytes), and one vbyte equals 4 weight units. Witness data counts as only 1 weight unit per byte, effectively a quarter of the usual cost. Signatures and public keys make up most of a transaction input’s size, so spending funds from SegWit addresses is cheaper. The more inputs a transaction has, such as when consolidating funds, the greater the savings.
What Is the Difference Between Native SegWit and Wrapped SegWit?
Native SegWit uses Bech32-encoded bc1q addresses: single-signature addresses are called P2WPKH, and script and multisig addresses are called P2WSH. They have the lowest fees. Wrapped SegWit places a SegWit script inside a P2SH address starting with 3, which works with older systems that do not recognize bc1 addresses, but the extra script layer makes fees slightly higher.
Today the vast majority of wallets and exchanges support bc1q addresses, and the wrapped form exists mainly for compatibility.
What Foundation Did SegWit Lay for Later Upgrades?
A transaction hash that cannot be altered is a prerequisite for off-chain payment channels such as the Lightning Network to run securely, because they need to pre-sign follow-up transactions that reference unconfirmed transactions. SegWit also introduced a witness version number, with version 0 being today’s bc1q addresses. The later Taproot upgrade is witness version 1, with addresses starting with bc1p, and it required no further large-scale structural changes.
Conclusion
SegWit separates signature data from the transaction body, fixing transaction malleability, increasing block capacity and making bc1q addresses the lowest-fee mainstream option. Businesses that use native SegWit for their deposit and consolidation addresses can save significant fees over the long term. Safeheron’s MPC Wallet-as-a-Service provides businesses with MPC key management and a policy engine.
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