SegWit increases the Bitcoin’s block size limit and allows the implementation of the second-layer solutions for further improvement.
Current issues of Bitcoin scalability arise primarily from the insufficient block size. Consecutive blocks of transactions are what the Blockchain technology is comprised of. Blockchain, in turn, is the ledger of all transactions that have taken place in the network up until now – the lifeblood of the cryptocurrency.
The problem here is that currently, blocks have a hard-coded limit of one megabyte. This is not enough to account for the hundreds of transactions that the users are trying to send every minute.
Consequently, a lot of those users have to wait in line until their transaction can be confirmed; sometimes for hours or even days. As the size of the network grows, so does the transaction intensity, whereas the block size limit stays the same, which means that the problem is continuously getting worse.
SegWit’s solution to this is twofold. First of all, it enables an immediate increase of the block size limit to four megabytes. There’s one caveat here: four MB is the absolute maximum, while the actual block size will depend on the network conditions. It is predicted by experts to be in the range of about two to 2.1 megabytes immediately after SegWit’s activation.
Secondly, by solving transaction malleability, SegWit eliminates what used to be a minor problem for Bitcoin itself, but a major barrier to implementing second-layer solutions on top of it. One of those solutions is the proposed Lightning Network. It is expected to allow for a massive increase in the network capacity by moving the bulk of transactions off the Blockchain for quick processing.
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