Bitcoin’s SegWit Impact: Transaction Fees Begin to Tumble
2017 was an interesting year for Bitcoin. Not only did it see the value of the cryptocurrency skyrocket to previously unimaginable proportions, but the year had bitcoin’s transaction costs hit a fever pitch, with average fees touching $55.16 (while the median was $34.09) in late December while investors were left justifiably unamused.
With the recent adoption of SegWit, the now-reduced fees have created some breathing room; dropping as much as 50 percent from the December high on January 1, but have started to rise once again.
What is SegWit?
SegWit, the shortened form of Segregated Witness, is quite possibly the most significant protocol update in Bitcoin’s history. It was first suggested by Pieter Wuille in 2015, who was recently lauded as one of the most influential Bitcoin contributors in 2017.
The new technology addressed some of Bitcoin’s most pressing issues, with one of them being the high cost of transactions.
This was primarily enabled by the change from block size limit to block weight limit, which rearranges data placement in the Bitcoin blockchain’s witness blocks. Ultimately, this allows a greater number of transactions to pass through the network at any given point in time.
In addition, the security and efficiency of the protocol are improved, as well as malleability and the long-term scalability of Bitcoin.
Spotting a SegWit address
SegWit addresses generally differ from traditional legacy Bitcoin addresses by usually starting with the number 3. For the most part, legacy addresses start with the number one, and are still commonly used by a large number of exchanges, wallets and Bitcoin companies.
SegWit was implemented by CoinGate on December 23, 2017.
The digital currency payment gateway has listed seven key reasons for their SegWit adoption, which are summarized as follows:
- SegWit has been comprehensively tested,
- It allows four times as many transactions per block,
- Transaction malleability is significantly improved,
- Eases the upgradeability to the Lightning Network,
- Hardware wallets are more secure,
- Signature-hashing is made more efficient,
- The playing field of Bitcoin mining is leveled out, as miners can no longer use AsicBoost covertly.
As well as CoinGate, the popular peer-to-peer bitcoin exchange LocalBitcoins.com announced on Twitter that it had implemented SegWit on January 2, 2018. As a large marketplace spanning various countries, this should help to further increase the number of transactions between SegWit-supported addresses, along with popular wallet service BTC.com announcing their support.
SegWit and the Future of Bitcoin
Although officially introduced in August of 2017, it was not until the first week of January 2018 that SegWit became more widely adopted. The slow start, although prolonging Bitcoin’s snags, was necessary in order for many wallets to facilitate the adoption of the change.
It is understood by experts that once SegWit becomes more widely used, Bitcoin will move closer to utilizing the two to four megabytes worth of transactions for every ten minutes that it is currently able to support. While SegWit implementation remains slow, Bitcoin averages close to 1.1MB, which illustrates the slow speeds that users are currently experiencing.
The SegWit protocol is compatible with older versions of Bitcoin, as well as supporting future growth and upgrades of the system. At this stage, it appears that SegWit will remain a key aspect of the Bitcoin blockchain network for the foreseeable future, with a wider embrace required to ensure transaction fees are reduced even further.