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segwit bitcoin capacity

As a way to increase bitcoin capacity, segregated witness (SegWit) has been a polarizing issue within the bitcoin community. By now you’ve probably heard the chatter, if not the rants.

SegWit is a protocol designed to address the issue of bitcoin scalability. The idea is to separate the signature field of a bitcoin transaction from the transaction itself, and move it to a Merkle tree. This will make the transaction appear smaller, creating more space in each block and boosting the bitcoin network’s capacity.

SegWit is coded into Bitcoin Core’s latest software release (0.13.1). Now it needs 95% of miners to upgrade. Once it has this combined hashing power for at least two weeks, SegWit can launch. As of this writing, the adoption rate is approaching 25%. The final step is when Bitcoin wallets offer these types of transactions. SpicePay is already there.

Let’s take a look at the benefits. The new protocol will allow around 1.8 times more transactions per block. This will significantly increase bitcoin capacity, roughly doubling the speed of transactions. Anyone who accepts bitcoin payments would say the faster, the better.

Also, SegWit is a soft fork solution. One might think the obvious solution to increasing bitcoin capacity is to increase the maximum block size. Trouble is, a single line of code in Bitcoin Core establishes the maximum (1MB). Making even the simplest update to this line would be a hard fork. These types of code changes are more complicated. One misstep, and they can put the entire bitcoin protocol at risk. In comparison, a soft fork causes far fewer complications. It is slower, but safer.

On the subject of safety, SegWit also eliminates the vexing problem of transaction malleability. This would provide additional security for Bitcoin transfers.

Finally, SegWit will open the door to smoother scalability updates in the future. One of the most anticipated is Lightning Network, which is designed to expand bitcoin to accommodate millions of transactions per second. Since developers Joseph Poon and Tadge Dryja first introduced it, Lightning Network has come to be viewed by many as the future of bitcoin transactions – a way to “make bitcoin great again”, and deliver on the promise of lightning-fast global payments. Its release hinges on the fate of SegWit.

Then we have the other side of the debate, and a competing solution: Bitcoin Unlimited. The primary difference is that this fork removes the block size limit for miners and provides the option for non-mining nodes. These allow miners to indicate the maximum size of blocks allowed and reject blocks that exceed it. In effect, the market would determine the optimal block size. By letting the miners rather than the developers decide, Unlimited offers a permanent solution to the ongoing scalability issue.

Ultimately the decision rests with the mining pools, which are weighing in one by one. If there is a deadlock, Bitcoin will stay the same. SpicePay is monitoring the situation. Look for updates on our news page, Twitter, Facebook and Google+.