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Bitcoin Exchange Coinbase Promises SegWit Rollout

Bitcoin exchange Coinbase promises SegWit rollout

Reading Time: 3 minutes by on February 7, 2018 Bitcoin, Business, News

In what could be a turning point for Coinbase the exchange has promised to implement the bitcoin scaling solution SegWit (Segregated Witness) to reduce fees and congestion “in the next few weeks,” after an extended period of the community calling for this move.

The announcement was made on Coinbase’s Twitter account on February 5 stating:

“Our engineering team has begun the final testing phase of SegWit for Bitcoin… SegWit-compatible Bitcoin sends/receives will be available for customers in the next few weeks.”

SegWit is an upgrade to the Bitcoin network that was activated via a soft fork (meaning it is backward compatible) in August 2017. Litecoin had implemented the upgrade to their network during May of 2017 as reported by BTCManager.  

SegWit Basics

A simple analogy could help explain the purpose and use of SegWit. For example, if you had too many letters being posted to one letterbox we can either increase the size of the postal box to receive more letters. Alternatively, we can keep the size of this postal box the same and reduce the size of our letter or envelope (the message being sent). Essentially, this same principle is being applied to the Bitcoin network to solve the problem of the slow and expensive transfers as well as fix malleability issues for further upgrades such as the Lightning Network.

SegWit allows the size of transactions to be reduced, thus optimizing the limited space in Bitcoin‘s blocks. The reduction in the size of transactions is done by separation of the unlocking signature (also known as witness data) and the sender and receiver data. By committing the witness data to blocks separately, it would be counted as a quarter of its normal size as compared to a non-SegWit transaction.

BTCManager previously reported on a simulation to explore the advantages of SegWit, and found that if adoption reaches 90 to 95 percent, a block size of up to 1.8MB is possible. Big companies like Coinbase, once making the transition, could lead the rest of the ecosystem to begin to use native SegWit addresses. Users can only take advantage of this new feature when they use wallet addresses starting with ‘3’ as opposed to the previous legacy addresses starting with ‘1.’

Opposition to SegWit resulted in the birth of Bitcoin Cash, a User-activated hard fork which occurred in August 2017. For this crowd, they are not convinced that Bitcoin’s capacity problems can be solved with the soft fork solution and argue that the Lightning Network cannot be expected to carry the weight of the scaling issues on its shoulders.

Adoption Creeping Higher

The current proportion of transactions using SegWit is around 14 percent, down from the highest ever level of just above 18 percent in January 2018, according to data produced by the popular hardware wallet manufacture Trezor.

The recent decline in the transactions could be explained by users taking advantage of lower transactions fees when a transfer is made from the old legacy accounts to the new SegWit-compatible accounts.


A clear observation can be made that the upgrade has not yet been fully utilized to take full advantage of scaling opportunities. The sluggish increase in the percentage of SegWit transactions is the result of slow adoption of large firms, including Coinbase, but mainly due to the fact that many user wallets have not upgraded either.

Changing Market Structure influencing Conduct?

Robinhood, a new entrant into the cryptocurrency exchange market, may have been a factor in forcing Coinbase to speed up the implementation of SegWit, and in turn, reduce costs for its users and remain competitive.

In late January, the popular commission-free stock trading app announced it would soon allow cryptocurrency trading with a wider range of options than Coinbase and zero transaction fees. Currently, on Robinhood’s waiting list, there are more than one million people, and the exchange is expected to launch February 2018.

According to a Reddit post from February 7, one Coinbase user noted that their weekly account limits were massively increased, suggesting that a bit of competitive pressure could be having a positive effect on conduct in the exchange market.

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