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Segregated Witness – The benefits of the potential Bitcoin soft fork and why miners should signal support

Segregated Witness – The benefits of the potential Bitcoin soft fork and why miners should signal support

The Bitcoin core developers recently released the latest version of Bitcoin Core 0.13.1, which since November anyone using it signals support for segregated witness (segwit). Unlike many other block size increase proposals, this is a ‘soft fork’ where older clients will still recognise blocks generated. It essentially increases the block size to 4MB, Segregated witness also allows the Lightning network and other sidechains to be present on the network.

This is so far in our opinion the best solution to solve the block size debate, by allowing the Lightning Network to be used and the ability to fit more transactions in each block. And it does not require a hard fork. This can avoid a potential problem, however segwit requires more computing power for block validation, which will increase the recourse cost of running a full node, but this could occur when larger blocks occur.

This soft fork is a great proposal to the block size debate, as it allows use of the lightning network thus taking load off the main block chain, allows people using older clients to continue using them without penalty, and allows the block size capacity to be better utilized leading to more efficient storage of the blockchain.

Other forks in Bitcoin’s code such as Bitcoin Unlimited have been proposed, but it is a quick fix at best and without networks like lightning, if you had even 10% of people in the world transacting in bitcoin with unlimited size blocks, the blocks would be so large and take so long to propagate and the disk space required for the blockchain would increase so fast that it would cause centralization of nodes.

Out of many proposals, despite some of the drawbacks of segregated witness such as higher node recourse requirements, and potential drop in TX fees for miners for a while, there is work to mitigate the higher node requirements by improving in other areas, and the ability to add ‘layer 2’ type networks on top of the main blockchain such as the lightning network is a major step forward.

There may be other solutions on the table, but segregated witness is the best solution in our opinion to solve the block size problem and scalability for Bitcoin, and it has required massive changes to Bitcoin’s codebase by the developers, something that has rarely had to be done.

To put something as complex as addressing scalability into the hands of random developers for other hard forks is risky and it is safer that we go with the tried and tested developers in this scenario who have dedicated significant man hours to make this happen. Currently, around 35% of network hash power is signalling support for segwit.

Hopefully we swiftly reach the 95% required to ensure its activation. We will update as more information becomes available.

 

 

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