Segregated Witness (SEGWIT)

Segregated Witness, or SegWit, is a technology upgrade that was implemented on the Bitcoin network in 2017 to improve scalability and security. In a traditional Bitcoin transaction, the transaction data includes both the transactional information (sender, receiver, and amount) and the witness data (the cryptographic signature that proves the sender authorized the transaction). SegWit separates, or "segregates," the witness data from the main transaction block, allowing more transactions to fit within each block and effectively increasing the network's throughput without raising the formal block size limit.

Beyond scalability, SegWit also fixed a long-standing vulnerability known as transaction malleability. In the old format, a third party could alter a transaction's unique identifier (TXID) before it was confirmed, by modifying the signature data. This was a significant barrier to building second-layer solutions on top of Bitcoin, such as the Lightning Network, which requires reliable transaction IDs to function correctly. By moving the signature outside the main transaction data, SegWit made TXIDs immutable and enabled the development of more sophisticated off-chain payment channels.

SegWit adoption was gradual and sometimes contentious within the Bitcoin community, contributing to the hard fork that created Bitcoin Cash in 2017. Today, SegWit is widely supported across wallets and exchanges, and SegWit addresses — which begin with "bc1" in native SegWit format — are the recommended standard for new Bitcoin transactions. Using SegWit-compatible addresses generally results in lower transaction fees due to the reduced data weight, making it a practically important consideration for traders and users who transact frequently on the Bitcoin network.