Today marks the second anniversary of the implementation of SegWit (Segregated Witness) or Segregated Witness in the Bitcoin network, which has reached an adoption rate of 42% to date. The proposal, drawn up by the Blockstream company and the Bitcoin Core client development team, officially came to light in 2017, during the mining of block 481.822.

The improvement was published in 2015 under BIP-141 by Pieter Wuille, Johnson Lau and Eric Lombrozo, with the goal of helping improve Bitcoin’s scalability. In May 2017, the necessary consensus for its activation was achieved, after observing that the network was beginning to become congested, becoming full of unconfirmed transactions.

Subsequently, on July 2017, the miners followed the protocol described in proposal BIP-141, taking the first steps to carry out the update. Then, on August 9 of that same year, they managed to check the compatibility with SegWit, until finally the activation was done on August 23.

SegWit is implemented with the idea of ​​making the Bitcoin blockchain able to handle more transactions in less time, reducing the high transfer rates paid by users. To do this, the segregated witness protocol opened the doors for the network to operate with larger block sizes, bringing the maximum block size from 1 MB to 4 MB.

In this way, it guarantees updates in the size of the blocks of the network, without having to apply a hardfork. Additionally, it allows to reduce competition for priority rates among users and facilitates the reduction of network commissions.

Segwit adoptions since 2017

SegWit is a software function designed to improve the efficiency of transactions and reduce the cost of commissions on the network. Since its activation, several exchange houses and wallet services have been activating their functions in search of better results.

SegWit was activated on the Bitcoin network after almost two years of testing. The protocol was launched on December 21, 2015, by Eric Lombrozo, Johnson Lau and Pieter Wuille, along with the contribution of other developers such as Peter Todd and Gregory Maxwell.

SegWit emerged as a potential solution to Bitcoin limitations. Because the signatures do not determine the state of a blockchain (even when they are necessary to validate that state), the creators determine what, if such data is separated from the information linked to the Merkle tree, the problems that affect it will be resolved. to the growth of the network, such as malleability.

The use of the protocol was growing gradually since its inception. By October 2017 SegWit already had more than 10% adoption, although these levels became noticeable in the first months of 2018. Between the end of February and the beginning of March of that year, the percentage of transactions went from 14.5% to 30 % of total network volume. The progress was sustained that year until reaching a historical maximum of 51.6% in October 2018.

At the same time, after reaching this historical maximum, from the end of 2018 to date, the process of adoption of SegWit has been more or less constant, with oscillations that move between 30% and just over 40% of the volume of transactions of the net.

According to SegWit Space statistics, for this second anniversary, the protocol marks a 42.4% adoption. according to Charts Woobull’s graphics, this August 21 the network would have registered a total of 132,000 transactions with SegWit, out of a total of 332,000 transactions made in Bitcoin.

Although the pace of adoption does not show extraordinary increases compared to the data that was available for the first anniversary of SegWit, its presence is active on the network and together with Lightning Network offers users lower commissions and solutions to malleability problems.

Limitations at hand

The fact that adoption still does not approach 100% means, for many, that the performance of the Bitcoin blockchain is not fully optimized. Among the reasons why the use of SegWit does not increase significantly is a possible lack of incentives.

On this, the Bitcoin BRD client observes the influence of the format mostly used in the adoption of SegWit. This is P2SH, compatible with previous versions of clients that do not support SegWit. For these analysts, the fact that current SegWit transactions are executed mostly wrapped within P2SH does not motivate senders to use Bech32 addresses, created specifically for SegWit.

BRD claims that Bech32 is allowing direct use of SegWit without the wrapper, in addition to other improvements such as more efficient QR codes and better error correction, “but it is not readable for customers who do not support it.” Hence, ecosystem members are invited to make an update.

BDR expressed:

“The hope for SegWit, as many industry experts share it, is to make the complete transition to Bech32 and get away from wrapping SegWit transactions in P2SH.”

Commissions decrease

Among the advances achieved with the SegWit proposal is the fact that the basis for Lightning Network’s creation is enabled. It has also become a key piece to ensure that off-chain transactions are less vulnerable to code modifications by a third party.

Following the progress in the adoption process, significant results have been seen at the beginning of 2018, when there were significant declines in commission rates. In March of that year, the commissions went to levels around 8 satoshis/bytes per transaction confirmed on the network. The lowest point was recorded on January 2019 with 4.71 satoshi/bytes per average transaction.

However, there is an increase from March 2019, with an average of 104 satoshi/bytes per transaction for June of this year. The increase in transactions with higher commissions coincides with the rise in cryptocurrency prices in the market. However, at the end of last July, the constant increase in rates caused a reduction in VeriBlock transactions, giving impulse to payments enabled in SegWit.

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