How to Use Bitcoin SegWit Transactions: a Guide
You ’ ve credibly hear and read the condition “ SegWit ” quite a few times recently. We ’ ve seen the reports saying that transactions via SegWit are rising, and many in the Cryptoverse have been singing praises to this upgrade, urging platforms and networks left and right to integrate it. even Binance CEO Changpeng Zhao ( CZ ) seems to be thinking about adding it to his own chopine. Yet, explanations on how to actually use it are amazingly few. Let ’ s deepen that .Source: iStock/farakos
What is it?
first, let ’ s shortly see what we are talking about hera. As we know, there ’ s a ten thousand of cryptocurrencies out there and each crypto has its own protocol, which is, simply put, a set of rules they must follow. And this is where segregate Witness ( SegWit ) comes into play. It ’ s an optional protocol promote to blockchain networks, first activated in 2017 on the Litecoin and then on the Bitcoin networks. As ‘segregate ‘ means to separate, while witnesses are the transaction signatures, therefore SegWit stands for “ to disjoined transaction signatures. ” Every block has a digital signature ( witness ) of the sender as a partially of the transaction data, which is important for the validation process, but takes up a whole bunch of space – about 60 % of transaction data. Thanks to SegWit as a action, signature data from transactions are removed, freeing up space for more transactions per block, mean that a blockchain will see an increase in its block size terminus ad quem.
Why is it utilitarian ? Four words : malleability, price, travel rapidly, and scalability. When you have more capacity for more transactions to be stored, you get more transactions per block, faster transactions, and lower transaction fee. however, SegWit as a concept was originally formulated by Bitcoin developer Pieter Wuille, and it was meant to protect users from transaction malleability – a type of attack that allowed person to change a alone identity of a Bitcoin transaction. And while many believe that SegWit, in combination with the Lightning Network will allow for millions of transactions per second base to be processed, SegWit has besides caused friction in the Cryptosphere, followed by intemperate forks. The critics besides claim that this update is not enough to change the issues Bitcoin is facing with scalability .
How to use it?
now that we know what it is, let ’ s go on to how to use it. It ’ s actually quite dim-witted, and bombastic majority of it is automatic – mean, that all you have to do is set it up, and off you go transacting while striping your key signature off the data and enjoying lower fees .
Step 1: Get a wallet that supports SegWit transactions or upgrade the one you own
SegWit has come a long manner since 2017, but not all wallets have it as an choice. Some that do include Trezor, Ledger, Samourai Wallet, Electrum, KeepKey, and quite a few others. We advise you research a wallet before a leverage, to find the one that suits you on all its aspects. If you already have a wallet that supports SegWit, but don ’ triiodothyronine see it as an option, you likely good need a software or a firmware update ( depending on whether you have a software or a hardware wallet ), but there shouldn ’ metric ton be a motivation to download or purchase a different wallet. To update it, you simply need to follow the guides provided by each specific wallet .
Step 2: Create a new account
now that you ‘ve downloaded your newly wallet or upgraded your erstwhile one, it ‘s time to create a new SegWit account to move your funds to – yes, even if you haven ’ deoxythymidine monophosphate downloaded any new software or purchased a new device, you need to create a offprint bill and address. This step may slightly differ from wallet to wallet, but these differences are normally minor and should n’t pose a problem. Before creating the explanation, some wallets will ask you to choose a cryptocurrency and your device type though.
then, you are probable to be offered two sets of accounts :
- Your old account, called a Legacy account – no matter how many you have, don’t worry, they are safe and will remain absolutely the same, as the update has no effect on them; they will just not be able to support the new features;
- Your new SegWit account – the option we’ll be choosing here.
For those wondering if they can make multiple SegWit accounts – you can. This will besides depend on the wallet, but the basic premise is that you will just need to repeat the steps we ’ ve outlined for each account you want to make, and probably change the deriving paths for which your specific wallet should besides have a steer .
Step 3. Generate a SegWit address
We have an explanation, nowadays we need an address. Make sure to follow the instructions by your wallet on how to generate an savoir-faire. With some wallets, after you ’ ve finished making an account, all you need to do is click on it and verify it through prompts, and that ’ s it. however, you may besides be asked to choose the address format.
There are three address types – you might be offered two, or all three – and you ’ ll recognize which type is which right away based on their formats. Knowing how to differentiate them is relevant, not only for the sake of choosing the one you want, but for knowing what each can do and what kind of transactions you can make with each of them .
- Legacy address (P2PKH) – original BTC address; starts with a 1; all wallets support sending to and receiving from these addresses; these are not SegWit transactions.
- Nested SegWit address (P2SH-P2WPKH) – starts with a 3; it’s not the SegWit standard, but it comes with full compatibility; P2SH (Pay To Script Hash) doesn’t mean SegWit only (it can also be a multi-signature address), but you’ll recognize SegWit as it’s P2WPKH nested into P2SH; may appear on your device only as “SegWit”; supported by a number of exchanges and wallets.
- Native SegWit address (bech32) – starts with bc1; this prefix is reserved strictly for SegWit addresses (this is ‘real’ SegWit, so to say); also known as the bech32 address; supported by few wallets and exchanges.
4. Move the funds to your new SegWit account
This is the stopping point footfall. To start using SegWit, you must transfer funds, that is, send a P2PKH requital from your Legacy account to this P2SH-P2WPKH address like you would complete any other transaction. In shortstop, send your money there first. After this dance step, you can send and receive funds via this latest address format and with lower fees that come with it. As mentioned, though, not all wallets and exchanges support nest SegWit, and very few hold native SegWit. While the number of those that to support it grows, it is something to take into consideration when it comes to fees. Depending on what type of transaction it is, the fees will logically be lower or higher. The source matters hera. thus if you make a transaction with another SegWit address, good for both of you, as it ’ s a SegWit transaction, and you ’ ll pay less. If you send some money from your SegWit address to a Legacy address, it ’ second silent a SegWit transaction, and you ’ ll pay less. But, if you have a Legacy address and you send some funds to a SegWit address, that ’ s not a SegWit transaction, hence low fees do not apply. What if you haven ’ t or don ’ deoxythymidine monophosphate want to upgrade your wallet ? Or you want to, but you are concern about the possible incompatibility issues ? ‘ But what if my checkmate sends me some sats from his SegWit savoir-faire, or I want to send some to them, ” I hear you ask. The good news is that one of the best things about SegWit is that it ’ s a piano fork and P2SH address format is backwards compatible – and this means that you all can transact with everybody else careless of the address format. There are some differences of course, besides the fees. For case, if you don ’ metric ton upgrade and a SegWit cover sends you BTC, your wallet may not show the payment until after it has been included in a block, as it needs to be confirmed by a miner, as Bitcoin Core explains. The regretful news ? As said, the native SegWit choice is still quite modification, though the future is looking bright for it besides. In the interim, you may experience issues even if you ’ ve done all the steps correctly on your slope. You may find that you can ’ thyroxine station to or receive funds from certain addresses, though technically you should be able to. The reasons for this are versatile, and many remain obscure, as those who haven ’ deoxythymidine monophosphate completed an update may not look into why the transactions concerning update wallets don ’ metric ton work. many people blame sites ’ easily solvable validation issues for causing such problems, as these sites are ineffective to recognize SegWit addresses, particularly native ones. Whatever the reason, you can constantly use your Legacy address in subject of a problem, until SegWit upgrades become more coarse and its custom politic, as many hope it will. __
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Let us and your fellow readers know in the comments if you’re planning to start using SegWit, and if you already do – what’s your opinion on it so far, have you run into any issues, and how did you solve them.