Why Segregated Witness will make 2017 Bitcoin’s best year yet

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This post is a companion bitcoin coresegregated witness adoption the earlier post on Segregated Bitcoin coresegregated witness adoption Benefitsgiving an overview of the technical costs and risks that may be incurred by activating segregated witness via BIP For the purpose of this post, we will use costs to describe negative results that are certain to occur if segwit is deployed and activated, bitcoin coresegregated witness adoption risks to describe negative impacts that may not happen, or changes that not everyone may consider negative.

When analysing risks, we consider bitcoin coresegregated witness adoption undertaken to avoid the risk that is, to minimise the chance of it occurringand steps undertaken to mitigate the risk that is, if it does occur, how the negative impact can be minimised. This post does not attempt to produce a conclusion as to bitcoin coresegregated witness adoption the benefits outweigh the costs or whether segwit should be deployed or activated, but rather to assist by providing background information to assist stakeholders in making informed decisions.

A witness commitment is included in the coinbase transaction, adding between 38 and 47 bytes, or about 0. See BIP - bitcoin coresegregated witness adoption structure.

This adds an overhead of 2 bytes per transaction to allow the serialisation formats to be easily distinguished, bitcoin coresegregated witness adoption an overhead of 1 byte per input for the count of witness items for each input. The segwit transaction formats see BIP bitcoin coresegregated witness adoption witness program have the following impact when serialised:. The percentages above are based on a transaction of bytes with one input and one output. The motivation behind the first factor is discussed under Increased security bitcoin coresegregated witness adoption multisig via pay-to-script-hash P2SH.

This should naturally limit the impact of this overhead in the long term. It is possible to make most of this overhead disappear via changes to the network and storage serialisation formats: With segwit, additional processing is introduced when validating a block in order both to check the witness merkle tree, and to deal with P2SH-encoded witness transactions. The segwit patch set bitcoin coresegregated witness adoption a major change to Bitcoin, and was rolled out, though not activated on the main Bitcoin network, in Bitcoin Core 0.

Any major change like this runs a variety of risks, including:. For example PR In order to reduce the chances of these risks occurring when segwit bitcoin coresegregated witness adoption activated, the following steps have been undertaken:. Bitcoin coresegregated witness adoption segwit patch also includes an additional 3, lines of added or modified code in the unit and integration tests that help ensure segwit is functioning as expected on every full build of the Bitcoin Core program.

A major factor in mitigating the impact of any bugs is that segwit is implemented as a soft-fork. Users of Bitcoin can simply avoid newly introduced features until they are personally confident they are implemented correctly, without losing any functionality.

The concept of technical debt is that an easy fix now might cause enough difficulty and problems in the long term, that spending more time and effort now will turn out to be more economical. As noted above, the segwit code has been heavily reviewed, which helps resist the introduction of technical debt at both a code and design level. Also as noted above, segwit has multiple independent reimplementations, which helps discover any unnecessary complexity and technical debt at the point that it can still be avoided.

In support of existing efforts to pay down technical debt by refactoring and improving the Bitcoin codebase, segwit was merged as a code-only update as part of work towards the 0. Bitcoin already suffers from some significant design debt, and segwit is specifically designed to reduce the impact of some of this debt notably transaction malleability, linear scaling of signature hashing, and signing of input values. Disabling those features would render those transactions unspendable, effectively stealing funds from users.

A soft-fork is any change bitcoin coresegregated witness adoption Bitcoin consensus rules that invalidates some set of previously valid transaction. The primary potential failure modes include:. Numerous soft-forks have already been activated in Bitcoin including BIPs 1634656668, andand this experience has been codified in the BIP9 process for activating soft-forks.

The BIP9 process was used for deploying the CSV soft-fork BIPs 68,andand resulted in a fast and unproblematic upgrade to the consensus rules for that change. The new restrictions imposed by segwit only affect transactions that no one would currently make use of because:. The affected transactions would be non-standard, and thus not relayed by the vast majority of nodes or mined by most miners.

This makes it impossible to achieve double spends of segwit outputs by relaying one transaction through old nodes and a different transaction through segwit nodes. However, these differences may bitcoin coresegregated witness adoption be used to attempt a double spend, for example by combining a non-segwit output and a segwit output in a single transaction that will only be relayed via the upgraded segwit nodesthen attempting to double-spend it via a higher fee transaction only using the non-segwit output, which may be successfully relayed via the old nodes.

These concerns only affect unconfirmed transactions in the mempool; once a transaction bitcoin coresegregated witness adoption confirmed and mined in a block, double spending remains impossible.

Existing methods for monitoring double spends should remain equally effective, provided the monitoring tools are able to track segwit spends at all. Ensuring miners mine valid blocks is obviously a high priority to everyone involved, and significant work has gone into guaranteeing this is the case with segwit. If the segwit soft-fork were reverted after being activated, this could allow anyone who had made segwit transactions to lose funds — for example, a malicious miner could replay the transaction on a chain without segwit enabled, at which point it would be anyone-can-spend, and the miner could then steal the funds by spending it to themselves.

There are two ways in which a segwit soft-fork could be reverted after being activated while allowing theft of segwit-enabled transactions:. Miners could simply use software that does not recognise segwit rules such as earlier versions of Bitcoin Core to mine blocks on top of a chain that has activated segwit. This would be a hard-fork as far as segwit-aware software is concerned, and those blocks would consequently be ignored by Bitcoin users using segwit-aware validating nodes.

If there are sufficiently many users using segwit nodes, such a hard-fork would be no more effective than introducing a new alt coin. Significant work has gone into ensuring that segwit enabled peers will form a strongly connected subgraph of the Bitcoin P2P network. This includes providing a dedicated service bit for witness enabled nodes and preferentially connecting to such nodes.

Segwit updates the 1MB block size limit to a 4M unit block weight limit, counting serialised witness data as one unit, and core block data as four units. These outcomes may have positive attributes more volume allows more user uptake, for examplebut also have possibly significant negatives:. Larger blocks may result in slower block transmission, resulting in higher orphan rates for miners — this in turn may result in lower security less hashpower required bitcoin coresegregated witness adoption take over the networkor higher centralisation larger miners being more able to reduce their orphan rate.

Larger blocks will result bitcoin coresegregated witness adoption higher resource requirements for full nodes, bitcoin coresegregated witness adoption causing users to shut down their nodes, which would result in higher centralisation. Larger UTXO sets will result in higher resource requirements for miners, potentially causing miners to share validation resources, which would result in higher centralisation.

Deployment of Compact Blocks via BIP helps limit the impact of larger blocks on block transmission, and hence orphan rates, and also reduces bitcoin coresegregated witness adoption bandwidth usage of full nodes.

Pruning support allows users to run full nodes without storing the entire history of the blockchain, which allows users who have constrained storage resources to continue running full nodes, even with a larger block size.

The changes to the signature hashing algorithm used by segwit signatures to avoid quadratic scaling, provides a significant reduction in cost for some large transactions. The deployment of segwit as a soft-fork to ensure the worst-case UTXO growth does not get any worse. Since the maximum amount of data per block is capped at no more than four times the current rate, mitigation work to address problems that arise from large blocks should be within the bounds of relatively straightforward engineering work.

Further, since bitcoin coresegregated witness adoption expected amount of data per block is only approximately double the current rate, this means any necessary mitigation efforts should be further eased. There is ongoing work to improve on-disk and network serialisation of transactions and blocks, further reducing the storage and bandwdith requirements of running a full node. The security of the Bitcoin blockchain is provided by hashpower, which is rewarded by both a fixed block reward and by fees from individual transactions.

As a result, decreases in fee income have the potential to reduce the hashpower used to mine Bitcoin, which in turn may lower the security of the Bitcoin blockchain. In so far as the individual transaction fees are determined by market forces and supply and demand, the changes introduced by segwit may risk lowering prices by increasing supply presuming that demand does not also rise, either because of or at least concurrent with segwit deploymentand lower bitcoin coresegregated witness adoption prices may result in lower overall mining revenue if the price elasticity of demand is in the inelastic range.

If this leads to users treating layer two solutions as a substitute for on-chain transactions, this may significantly decrease demand for on-chain transactions, which would put additional downward pressure on transaction fee levels. Fees are currently approximately 0.

In addition, fees have been rising over the past twelve months both in BTC denominated value from under 0. This approach has the potential to prevent any fee decreases due to increased supply or indeed to increase individual fees by reducing bitcoin coresegregated witness adoption, though that may not increase overall revenuebut cannot prevent decreases to fee income due to substitution effects such as the adoption of layer two networks.

While layer two networks may act as a substitute for on-chain transactions, they cannot avoid on-chain transactions bitcoin coresegregated witness adoption, and in some scenarios, even these comparatively few on-chain transactions from layer two networks can easily saturate the on-chain capacity with segwit enabled. Even if only a very small amount of the value of these networks are captured via on-chain transaction fees, this would likely be substantially above the current fee value.

As described above, full adoption of segwit by all transactions is expected to approximately double capacity. This provides a significant one-time increase in capacity, in either the short or medium term, depending on the speed of adoption.

In addition, by adding features to enable layer two networks, some additional medium and long term scaling may be achieved. By fixing the quadratic sighash scaling bug, segwit also reduces bitcoin coresegregated witness adoption risk of negative impacts due to future capacity increases.

Segwit does not, however, provide any direct mechanism for scaling on-chain transaction volume further other than that one-off doubling. This runs this risk that approaches to long-term scaling may be prevented or delayed: Additionally, work that has made the scale increases segwit allows achievable such as libsecpk1 and compact blocks have bitcoin coresegregated witness adoption, obviously, made further potential scale increases more achievable.

Segwit does not make further scaling any more difficult on any technical level — the risk here is entirely social. As a consequence, the most effective mitigation efforts are likely also social in nature: That segwit enables transaction volume to increase to approximately double current levels also provides the opportunity to demonstrate the actual impact of scaling, such as on node performance, decentralisation, and transaction demand, as well as the speed with which ecosystem upgrades can be undertaken.

This data could reasonably be collected and used to support future scaling efforts, either by showing that some feared outcomes are less likely than expected, or by confirming valid bitcoin coresegregated witness adoption and allowing work to be focused on addressing those concerns.

This section provides a brief comparison with some alternative approaches to achieving some or all of the benefits of segwit, and how those different approaches might change the costs and risks involved. Due to the comparative lack of experience with hard-forks in the Bitcoin community, unexpected risks and costs might also occur, though that is obviously hard to analyse by its very nature.

Bitcoin coresegregated witness adoption would save the bytes from the coinbase transaction, but does not offer any other advantages. Additionally, separate code paths to manage old style transactions would need to be kept, increasing code complexity and the possibility of bugs. BIPFlexible Transactions presents an alternative approach at gaining some of the benefits of segwit via an SPV-visible hard-fork.

Either approach to a hard-fork would make it possible to simultaneously drastically alter the consensus limits bitcoin coresegregated witness adoption blocks. Many of the benefits of segwit could logically be separated into independent changes, and evaluated and deployed separately. The implementation requirements for the various features are, however, closely related:. Doing these fixes independently would increase the complexity of the Bitcoin codebase due to the need to handle different features being active at different times on the blockchain; while deploying them concurrently removes this complexity.

Since segwit only allows increased signature operations via the updated opcodes, the old opcodes remain naturally limited. In contrast if a capacity increase were applied independently, additional limits would need to be implemented to ensure the increase was safe, likely adding complexity to mining and fee calculation. Segregated Witness Costs and Risks by. Introduction Aims Serialisation costs Rationale Future reductions Block validation costs Risk of introducing bugs Avoidance Mitigation Risks related to complexity and technical debt Avoidance Mitigation Risks related bitcoin coresegregated witness adoption soft-fork deployment Avoidance Risks due to larger blocks Avoidance Mitigation Risks due to lower fees Avoidance Mitigation Risks related to long term scaling Avoidance Mitigation Alternative approaches Hard-forked segwit Simpler segwit.

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Almost two years of iterative design, development, and testing has gone into the version of segwit being released in Bitcoin Core 0. Full nodes run by a reasonable number of users and business to validate the payments they receive need to be upgraded to Bitcoin Core 0. If enough miners do decide to adopt segwit, it will eventually activate and wallet users will be able to begin creating transactions with segregated witnesses.

The segwit soft fork has also been designed to be both backwards and forwards compatible with all commonly-used wallets, so wallet developers and users can also independently decide whether they want to adopt segwit or continue making transactions without segregated witnesses. Guides are provided below for both adopting and non-adopting developers and users. In addition to instructions, the end of each guide section below also provides a short list of recommended places to ask any segwit-related questions you may have.

This section is written for solo miners and mining pool operators. Pool miners should contact their pool operators for information about what they need to do if anything to upgrade or not upgrade to segwit.

Whether you wish to upgrade or not, you should understand the important stages of the upgrade process:. The BIP9 parameters for the segwit soft fork allow miners to begin signaling their support for it at the beginning of the first retarget period on or after 15 November To signal support, you will need to do the following:.

Upgrade the full node you use for transaction selection and block construction to Bitcoin Core 0. When segwit is activated, you will want to be able to mine and relay segwit-style blocks. The following mining software has been upgraded to support segwit.

All the programs linked above that support GBT have been upgraded. Segwit is already activated and enforced on testnet, so you may find it useful to test your infrastructure upgrade by mining with some small amount of hashrate on testnet. Alternatively, Bitcoin Core 0. Solo miners and pool operators are welcome to ask for help in bitcoin-mining on irc.

The segwit soft fork does not require you to produce segwit-style blocks, so you may continue producing non-segwit blocks indefinitely. However, once segwit activates, it will be possible for other miners to produce blocks that you consider to be valid but which every segwit-enforcing node rejects; if you build any of your blocks upon those invalid blocks, your blocks will be considered invalid too.

For this reason, after segwit reaches locked-in , it is recommended that you either upgrade your full node to Bitcoin Core 0. This section is written for anyone operating a full node, including both businesses and individuals.

This is not a problem: There is no reason to expect any differently for the segwit soft fork, and upgrading is an easy way for people who support segwit to help encourage its adoption. Those who are uninterested in segwit may, of course, simply not upgrade.

Details for both cases are described below. To upgrade to a segwit-compatible release, download a segwit-compatible version of your full node software such as the Bitcoin Core 0.

Note that if you upgrade after segwit has activated, your node will need to download and resync blocks from the activation point forward, since the old version did not download them completely. The wallet provided with Bitcoin Core 0. Later releases are expected to allow users to choose to receive payments to segwit addresses. If you use another full node, the best place to ask is wherever users of your full node software go for support. The maintainers of your software will be familiar with the idea behind segwit at the very least, and they will be able to tell you when it will be implemented and how it will affect you.

The situation will resolve itself within a few blocks as upgraded miners continue to enforce the new segwit consensus rules, but there is no guarantee that transactions shown as confirmed in the invalid block will continue to be confirmed in valid blocks. The easiest way to prevent this problem is to upgrade to Bitcoin Core 0. The newer node is connected to the Bitcoin P2P network as usual. When using this configuration, please note that the older node, if it uses Bitcoin Core defaults, will not see transactions using segwit features until those transactions are included in a block.

For the newer node, start it normally and let it sync the blockchain. At present, you cannot use a pruned node for this purpose because pruned nodes will not act as relay nodes. For the older node, first wait for the newer node to finish syncing the blockchain and then restart the older node with the following command line parameter this may also be placed in the Bitcoin Core configuration file:.

This will cause the older node to only connect to the newer node so that all blocks and transactions are filtered by the newer node. This section is written for anyone using a lightweight wallet, a web wallet, a wallet connected to a personal full node, or any other wallet.

If you do want to upgrade to segwit, you will first need to wait for miners to activate segwit, and then you will need a wallet that supports receiving and spending segwit-style payments. Users of Bitcoin Core or other full nodes should also read the section above about full nodes.

Some wallets have been generating P2SH addresses for years, so this may not be a change for you. All commonly used wallets are able to pay P2SH addresses, so you will be able to receive payments from any common wallet, whether or not they have upgraded to segwit. When spending only bitcoins you received before upgrading, you should notice no difference to transactions you created before upgrading.

When spending bitcoins you received after upgrading to segwit to someone who has not upgraded to segwit, they may not see your transaction until after it is included in a block. After the transaction confirms, they will be able to see and spend the bitcoins you sent them like normal. When spending bitcoins you received to your new P2SH addresses after upgrading, you may notice that the transaction fee you pay is slightly lower than when spending non-segwit payments you previously received.

This better aligns the cost of creating a block and thus its transaction fees with the actual costs of operating a full node. If you have any questions, the best place to ask is wherever users of your wallet go for support. The maintainers of your wallet will be familiar with the ideas behind segwit, and they will be able to tell you if segwit will be implemented for your wallet, when that might happen, and how it will affect your usage of your wallet.

This section is written for developers of any Bitcoin software that processes transactions or blocks. Segwit wallet developers guide: BIP Segregated witness consensus layer: Developers of mining and full node software will find the BIP9 parameters for segwit in the Deployment section. BIP Transaction signature verification for version 0 witness program: BIP Segregated witness peer services: BIP getblocktemplate updates for segregated witness: BIP Dealing with dummy stack element malleability: Segwit uses bit 1 for versionbits.

Please note, BIP address format for segregated witness is in deferred status as defined by BIP1 and is not proposed as a standard. Instead, wallet developers are invited to discuss on the bitcoin-dev mailing list the creation of a new Bitcoin address format that will be more usable than current base58check-encoded addresses.

For testing changes on a segwit-enabled network, testnet testnet3 has supported segwit for several months now and includes a large number of segwit blocks, including blocks that have very nearly the maximum block size allowed for by segwit. A number of free and open source software Bitcoin wallets and packages besides Bitcoin Core have also already added segwit compatibility or have segwit-compatible code ready to deploy, so you may be able to use their code changes as an example for updating your software if their copyright license is compatible with your code.

Bitcoin development questions may be asked in the bitcoin-dev IRC chatroom on irc. Questions may also be asked on Bitcoin. Segregated Witness Upgrade Guide by. Can be specified multiple times. Whitelisted peers cannot be DoS banned and their transactions are always relayed, even if they are already in the mempool, useful e. Recommended View all posts Bitcoin Core 0.