Many bitcoin enthusiasts have stated that Segregated Witness (SegWit) is not an efficient scaling technology as it significantly alters the structure of transactions. However, bitcoin experts including Andreas Antonopoulos believe that the activation of SegWit offers more improvements apart from scalability, as it opens the door for alternative solutions such as the Lightning Network (Lightning) and TumbleBit.
One of the many fixes which SegWit provide is the solution to transaction malleability. In specific, the upgrade allows both existing software and upgraded software to compute the transaction identifier (txid) of segwit-using transactions without referring to the witness.
The result of this method of txid calculation is the elimination of all cases of unwanted third-party transaction malleability, as the developers behind Bitcoin Core explained.
“This solves all known cases of unwanted third-party transaction malleability, which is a problem that makes programming Bitcoin wallet software more difficult and which seriously complicates the design of smart contracts for Bitcoin,” said Bitcoin Core.
SegWit’s unique solution to transaction malleability opens the Bitcoin network to alternative scaling and privacy solutions such as Lightning and Tumblebit. The Bitcoin community and industry are particularly anticipating the deployment of Lightning as it enables micropayments using bitcoin.
Before the introduction of Lightning, there existed no practical solutions that allowed the processing and settlement of micropayments. Standard bitcoin transactions require at least 30 minutes for the transaction have necessary confirmations to use the funds, and it also has to include an optimal fee of around 15 cents, according to Bitcoin Fees by 21 Inc. In other words, high costs and confirmation times made it impractical for users to send micropayments using bitcoin.
However, Joseph Poon and Thaddeus Dryja’s Lightning offers a unique proposition to users; the ability to make an unlimited number of transaction off-chain and merging those transactions into one single bitcoin transaction that is broadcast to the public Bitcoin blockchain afterward.
Within Lightning, multiple parties can settle an indefinite number of transactions amongst each other. For instance, thousands of users on a per-minute basis prepaid video content sharing platform can use Lightning to send a bitcoin payment after each minute passes. Once the video is streamed, and the accumulated payment amount is, for instance, $10, but 100 transactions have been made, only one single transaction of $10 will be broadcasted to the bitcoin blockchain with only one miner’s fee of 15 cents.
Antonopoulos firmly believes the implementation of off-chain trustless custodial second layer solutions such as Lightning and TumbleBit is a sufficient reason to active SegWit. He also explains that individuals or organizations that are against off-chain trusted party custodial (centralized exchanges) are also against Lightning which is ironically supporting the existence of trusted third party custodial.
“Ironically, people who object to [Lightning] are vehemently against [trusted party custodial] but by resisting SegWit are actually encouraging and feeding centralization into more counterparty-risk through centralized intermediaries. Demand is already pushing us that way. The lack of a trustless alternative leaves only one alternative,” said Antonopoulos.
Bitcoin expert Antonopoulos also emphasized that the failure to active SegWit and Lightning pushes bitcoin users to rely on on-coinbase transactions, which are worse.
Ultimately, in consideration of the opportunities for second layer solutions which Bitcoin’s upgrade can provide, Antonopoulos states that he supports the activation of SegWit.
@theonevortex I'm for segwit, not because of scaling, but because it offers solutions to many technical issues in bitcoin.
— Andreas (@aantonop) January 16, 2017