Coinbase has announced the long awaited SegWit upgrade to their trading platform. We’d like to take this opportunity to discuss how this is a very important change and how it will make Bitcoin faster and more accessible to everyone.
SegWit is a portmanteau of “Segregated Witness” and although the name sounds complicated, the concept is very simple. In cryptocurrencies, a “witness” is a piece of data that will convince the entire network that whoever created that transaction holds the private key for the sending address. That piece of data is, in essence, a “witness” to the signing of the transaction, just like you have witnesses to the signing of paper contracts.
In the original Bitcoin blockchain, the witness is contained within the same chunk of information as the sending and receiving addresses. It’s as if every money deposit or withdrawal at a bank came with your whole signature sheet and other verification information, which is obviously not necessary. You can securely deposit and withdraw money at your bank without carrying along a large envelope with all your documents. All you need is some way to verify your identity, a PIN or biometric signature.
With SegWit, as the name implies, the “witness” has been segregated from the transaction chunk of data and moved into a separate structure. This will allow more transactions to be packed into the 1 MB limit for Bitcoin blocks, while the verification data will be stored in a separate location within the blocks. In practice this will increase the physical Bitcoin blocks, but will not increase the logical size seen by the core protocol.
Coinbase is responsible for millions of Bitcoin transactions per day and their adoption of SegWit has been a long awaited upgrade. As Bitcoin transaction costs continue to decrease and more transactions are being packed into less space, Bitcoin is once again becoming a viable currency for everyday payments.
During 2017 many questioned Bitcoin’s viability as a currency and chose it especially to store value and as a long term investment. If SegWit is successful, it means Bitcoin can once again become a quick payment method. At this time there are 3362 unconfirmed Bitcoin transactions in the mempool. Although this may seem like a large number, in November 2017 this number reached over 120k unconfirmed transactions. At this time the Bitcoin transactions per second rate is at over 36. In 2017 the network had been executing less than 15 transactions per second during a long period.
Bitcoin continues to show resilience and amazing capacity to adapt. The Coinbase upgrade is a very welcome bonus to the Bitcoin market.