Bitcoin Scaling Explained: Big Blocks vs. SegWit - YouTube

Understanding SegWit. In order to understand Segregated Witness, or "SegWit" for short,

we first have to understand a little bit about Bitcoin.

Think of Bitcoin as a single global ledger and a Bitcoin transaction as a bank check.

As the owner of some amount of money, you can sign over your money to someone else.

Much like a bank check, a Bitcoin transaction has a signature.

Instead of a physical signature, you can create a digital signature using your private key.

A Bitcoin block is like a box of signed checks or transactions.

Much like physical boxes in the real world, Bitcoin blocks have a limit on how many

transactions they can contain. Right now, those boxes come in a standard 1MB size.

You can put just a few checks into the box so that it's almost empty, but you can't overfill the box.

To keep the global ledger consistent and cheat-proof, everyone that wants to can audit these boxes of checks.

A copy of the box of checks is sent to anyone that wants to audit the ledger.

If, in an audit of these boxes of checks,

someone found out that one of the checks overspent, they would reject the box.

This is important - since otherwise, people would start writing bad checks.

We also need to audit fairly often so people can actually have a good idea of how much money they have.

So, we send the boxes of checks to everybody for auditing every 10 minutes.

The Scaling Debate.

Because there's a limit to the box size, there's a limit to how many checks that can clear in a

timely manner. That is, the throughput of Bitcoin transactions is limited.

The scaling debate that's been going on for the past few years in Bitcoin is really

about how to get more transactions through the system.

The two solutions that groups came up with can be thought of in two ways. The first solution is to

make the box sizes bigger. This is great if everybody is forced to use a larger box,

but there are some problems with this idea. If, for example, some people kept

using the smaller box, they would reject the bigger boxes. This would create two

different ledgers. Additionally, even if everyone used the bigger box, a lot of

people checking the ledger would not receive the bigger boxes in time to

examine that all the checks were valid. Ten minutes is too little time to

receive and audit the box for some people. The main advantage of making the box

bigger is that it's a relatively simple change. There aren't new style checks to

worry about and everything can operate as before. "Bitcoin Cash" is essentially

using the solution by lifting the one megabyte block size limit and

implementing an 8 megabyte block size instead. The second solution is to

introduce a new style of check, which we will call "SegWit." We could still make

larger boxes available but only to those that want them. This new check cuts away

the signature part of the check for those receiving the smaller boxes. In the

digital check, the signature takes up about 50% of the transaction. Segwit

cuts the check in half and sends everything but the signature to everyone

that's accepting the old, smaller box. We send the entire check, including

signatures, to everyone that's accepting the new, larger box.

Given that the checks are half the size in the smaller boxes we can fit about

double the number of checks in the smaller boxes, increasing throughput.

Anyone that's receiving the larger box could audit everything in the boxes as

normal; anyone receiving the smaller box could still audit without worrying

about getting the signatures in time. Because we are accommodating the people

who aren't using the newer, bigger box, "SegWit" is backwards-compatible.

That means everyone will have the same copy of the ledger no matter what size box they're using.

The main drawback to Segwit is that

everyone will have to get used to the new style of checks before we see some

gains in throughput. It's also been more complicated than just making everyone

use a larger box. Additionally, everyone receiving the new

style checks, but using a smaller box, won't get to audit the signature since

they won't receive them. Bitcoin is using the new check solution.

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