SegWit (Segregated Witness) was introduced in 2017 for Bitcoin. It was activated as a soft fork according to Bitcoin Improvement Proposal 148 (BIP 148), which enforced SegWit to be activated. SegWit aimed to improve scalability, reduce transaction fees, and fix transaction malleability issues, in addition to more smaller benefits.
Let’s have a look today at why SegWit is a good update for Bitcoin because Segregated Witness (SegWit) addresses for Bitcoin are offering several advantages over legacy addresses:
Native and nested SegWit
Today, we know about native and nested SegWit addresses. While nested SegWit only offers few advantages, native SegWit is what was introduced in 2017, giving us full benefits from SegWit transactions:
| ________ | __________________________ | _______________________________________________________________________________ _____________________ |
| 1… | Legacy-Address | P2PKH (pay to public key hash) |
| 3… | Multisignature-Address | P2SH (pay to script hash) |
| ________ | __________________________ | _______________________________________________________________________________ _____________________ |
| 3… | nested SegWit-Address | P2WPKH-P2SH (pay to witness public key hash - pay to script hash) / P2WSH-P2SH (pay to witness script hash - pay to script hash) |
| ________ | __________________________ | _______________________________________________________________________________ _____________________ |
| bc1q… | native SegWit-Address (bech32) | P2WPKH-bech32 (pay to witness public key hash) / P2WSH-bech32 (pay to witness script hash) |
| bc1p… | Taproot-Address | P2TR-bech32m (pay to tap root) |
1. SegWit transaction are cheapest
SegWit offers us compared to Legacy or nested SegWit really low transaction fees and it will reduce our costs paid for transaction fees a lot.
Here’s an overview how large transactions of each type are:
| Type | |Input vbyte | |Output vbyte | |transaction vbyte |
| Taproot | |57,5 | |43 | |111 |
| Native SegWit | |68 | |31 | |109.5 |
| Nested SegWit | |93 | |32 | |134 |
| Nested SegWit | |140 | |34 | |192 |
For each input, we will save additional transaction fees.
SegWit transactions are simply smaller in size compared to legacy transactions because all witness data (signatures) is separated from transaction data. As a result, we get a lower fee per transaction vbyte.
2. Increased Block Capacity
Bitcoin has a limit of transactions in terms of transaction size for each Block: a limited number of transactions can only be fitted into each Bitcoin block, limiting Bitcoin’s capacity in terms of transaction size per new block.
SegWit allows more transactions to be fitted into each block. By separating all witness data, SegWit effectively decreases size limits for each transaction and effectively increases Bitcoin’s block size limit, which helps to process more transactions per block.
So, SegWit actively helps to reduce congestion in Bitcoin’s mempool.
Overall, using SegWit addresses will help us to reduce transaction costs, have a better network performance and future-proofing for additional improvements and features for Bitcoin.
Which ones are your favorite reasons to use Bitcoin native SegWit addresses?
SourcesPay-to-taproot (P2TR) transaction fee Why people should be using SegWit addresses Minimizing bitcoin transaction feeMempool empty! Use this opportunity to Consolidate your small inputs!List of Bitcoin Mempool Viewers for Reference