On Wednesday, 9 August 2017, Bitcoin reached a new technical milestone in this incredible technology’s history. The day marked the point at which the long awaited Segregated Witness (referred to as SegWit) locked in on the network, after a 95% consensus was reached by miners. SegWit now faces a 2 week grace period to ensure miners upgrade their software to support the new client, before the technical functionality becomes available, estimated to be around 21 August 2017.
From proposal, it has taken the network more than a year to implement SegWit, and the timing could not be better. Just over a week ago, Bitcoin experienced a hard fork and Bitcoin Cash (BCH) split from the main chain, as the miners and developers of Bitcoin Cash did not agree with the SegWit addition. In fact, a key differentiator between Bitcoin and Bitcoin Cash is the lack of SegWit, as well as an increased block size of up to 8MB.
With the high level of uncertainty leading up to the fork now somewhat abated, we have seen the price of bitcoin rise sharply and break all previous all time high records by breaching the $3,500 mark on 8 August 2017.
SegWit is a highly technical update, but offers Bitcoin crucial fixes and opportunities to fast-track its ability to scale, and to do so securely.
SegWit provides a patch for a coding vulnerability called transactional malleability, by changing the way that transactional data is formated within blocks. Essentially malleability meant that in some instances where miners amended data within the signature sections of the transaction, the transaction identifier would change, making it cumbersome to track some transactions without additional software to track the conversion. While this does not impact on the actual coins spent, the malleability posed an issue for certain functionality to be rolled out securely.
With transactional malleability fixed it paves the way for a range of enhancements, such as the Lightning Network, to be deployed. This would mean that highly anticipated functionalities like smart contracts and micro-transactions become feasible. SegWit essentially allows Bitcoin the capacity to scale tremendously, and facilitates a faster network, ensuring transactions can be processed quicker and at a lower cost.
As per what has become known as New York Agreement (SegWit2x proposal), the next crucial stage for Bitcoin will come circa November when miners and businesses will have to decide whether to leave Bitcoin as is, or to fulfil the full second aspect of the proposal, which requires another hard fork on the network to bring the block size up to 2MB from the current 1MB restriction. Block size was one of the most contentious elements of the scaling debate, and the SegWit2x proposal will essentially adopt a different version of Bitcoin code, outside of the Bitcoin Core developers’ repository. Time will tell whether this will remain a necessity considering Bitcoin Cash represented an immediate upgrade to block size, SegWit in itself will provide better scaling opportunities in the long run, and the Bitcoin Core developers are steadfastly against this move as they claim the code has not been thoroughly and sufficiently tested for stability.
Until then, we have a few months to watch how Bitcoin fares post the Bitcoin Cash split, and for now it is looking rather positive.