In August 2017, Bitcoin activated a major protocol upgrade called Segregated Witness (SegWit), first proposed by developer Peter Wuille in 2015. The change fixed a long-standing bug known as transaction malleability and indirectly increased the network's capacity by introducing a block weight system, allowing each block to hold up to 2,700 transactions compared to the previous limit of about 1,650. However, the upgrade did not come without controversy; it split the Bitcoin community and led to a hard fork that created Bitcoin Cash (BCH).
How SegWit Killed Transaction Malleability
Transaction malleability allowed attackers to alter a transaction's identifier (TXID) before miners confirmed it. In the old Bitcoin structure, witness data (digital signatures) was stored together with sender/receiver information inside a field called ScriptSig, which contributed to the TXID. By moving the signature part to a separate "witness" structure that is not included in the TXID calculation, SegWit made the ScriptSig immutable after signing. Consequently, any attempt to change the signature would invalidate the entire transaction, closing the loophole.
Block Size Boost Without Changing the 1MB Limit
SegWit did not directly raise the 1MB block size cap. Instead, it introduced the concept of block weight. Under the new rules, old transaction data (excluding witness) counts at weight 4 per byte, while witness data counts at weight 1. Since signatures typically account for about 65% of a transaction's size, the effective block capacity increased to roughly 4MB (on a weight basis). This allowed miners to include more transactions per block, reducing fees during high demand and improving overall throughput.
Use Cases Beyond Scalability
SegWit's primary benefit was fixing malleability, which had blocked the development of Layer-2 solutions like the Lightning Network. With malleability gone, multi-party channels became viable. The upgrade also reduced transaction fees by expanding block space supply, and improved network flexibility for future improvements — the modular transaction format later enabled Taproot and other upgrades. SegWit addresses (starting with "bc1") are now widely adopted across wallets and exchanges.
The Cost: Community Fracture and Miner Pushback
The upgrade faced strong opposition from miners who worried about reduced fee income and the overhead of storing witness data outside the main block. A faction of the community favored a simpler solution: increasing the block size hard limit. When SegWit was activated via a user-activated soft fork (UASF), the opposing group executed a hard fork on August 1, 2017, creating Bitcoin Cash, which increased the block size to 8MB and removed SegWit entirely. Adoption of SegWit was also slow at first; many wallets and services took years to support it, and some still do not.
Despite these challenges, SegWit has proven resilient. As of 2026, the majority of Bitcoin transactions use SegWit formats, and the block weight model remains a cornerstone of Bitcoin's scaling strategy. The upgrade's ability to enhance security, scalability, and flexibility with minimal disruption to the underlying protocol set a precedent for future network improvements.