On August 8, the Bitcoin network reached the level of consensus needed to adopt Segregated Witness (SegWit).

The bitcoin improvement proposal (BIP) that contained the SegWit software component had been released in June, at which point miners—special computers that confirm, verify and record transactions on the bitcoin network—gradually started signaling support for it. Samson Mow, chief security officer at Blockstream, a Canadian company building Lightning Network solutions said on the day of lock-in:

Today is a great day. SegWit has locked-in and paved the way for years of permissionless innovation. Lightning Network will be a real game changer.

What do the changes mean to users?

The function of SegWit that so interests its supporters, is that it removes transaction signatures from bitcoin blocks—the batches of transactions that are approved every ten minutes. This increases room for transactions by about 60%, reducing the time users wait for transactions to be approved. It is supposed to make using bitcoin cheaper, faster and more secure.

Before final activation, miners and nodes in the network installed the new version of the bitcoin core software that implements the improvements. Ordinary users of bitcoin don’t need to take any steps, as the changes will be completed through the software upgrades made by the miners. For the ordinary user, their wallet applications will work fine, though their wallet service may upgrade for more compatibility.

George Basiladze, founder and CEO of Cryptopay, a bitcoin wallet, payment processor and bitcoin debit card provider, - and about to launch its ICO soon - stated prior to the launch that users should expect lower transaction fees, faster confirmation and a more security on the bitcoin network once SegWit is finally activated in late August.

Users should ... expect even more innovations to come with the new protocol. They should also expect new start-ups, services and products.”

“The competitive landscape has yet to be defined but safe to say we don’t look at any current companies as being competitors. Our product and services are one of the most trusted in the industry and by focusing on having a quality service we are able to retain our growing user base,” he added.

Adapting to Growth

With the adoption of SegWit and other BIPs, Bitcoin is undergoing technical changes to make it resilient for handling a growing wave of new users. While centralized payment services such as PayPal and MoneyGram can handle as many as 450,000 transactions per second, the bitcoin network could only handle about 7 transactions.

Bitcoin’s low capacity level has eventually brought consequences, says Basiladze.

The capacity has served the community well since the inception of bitcoin in early 2009. But growth in adoption has caught up with it, which has resulted in delays and high transaction fees.

As an open-source and decentralized project, Bitcoin lacks a centralized authority to guide its improvement processes. Instead, it relies on a peer review process by which independent developers propose improvements and ask users to accept them.

The process is robust and, like its network capacity, has served bitcoin well since the cryptocurrency’s launch. But building consensus on BIPs has meant that time, patience and goodwill have been required from the community. Oftentimes, community politics have hindered alignment with the needs of the network.

Several bitcoin scaling solutions have been put through the rigorous process of developer review and user acceptance over the last two years. SegWit and the block size increase have gained the most support within the community, but not without what some have described as a virtual civil war.

Contentious solutions

The long debate finally came to ahead on August 1, when supporters who wanted an increase in block size broke away, or forked, from the main bitcoin chain and launched a separate cryptocurrency called Bitcoin Cash. A fork happens when some in the bitcoin network enforce a new set of rules that begin a new chain of transaction history.

The “big blockers,” as they are called, believe that increasing the size of the bitcoin block from 1MB to 8MB will solve the scaling problem and preserve the original mission of bitcoin founder Satoshi Nakamoto. They believe it will preserve bitcoin as truly digital cash.

Since the August 1 fork, a majority in the bitcoin community agreed to implement SegWit. The solution that was proposed by a core developer Pieter Wuille in 2015 has finally gained. SegWit does more than create more room for transactions and reduce confirmation times. It also allows other layers of scaling to be built on top of the bitcoin network. One of these is the Lightning Network, an option for users to create peer-to-peer payment channels that require only some transactions to be recorded on the blockchain.

The Lightning Network allows two users to transact as many times as they want before settling the net of their transactions on the blockchain. This makes the number of transactions the network can support per second possibly infinite.

SegWit also removes a long-standing technical glitch on the bitcoin network known as transaction malleability, which allows an attacker to hijack a transaction midway and change its ID. While transaction malleability has never been a major threat to bitcoin users, it has hampered the development of innovations such as the Lightning Network.

Software designer Oleg Andreev, who focuses on user experience and security, states:

Some people on the internet under appreciate how important [solving the problem of the] “malleability” aspect of Bitcoin is. [The problem] is one of the things that Segregated Witness upgrade is going to fix.