Ethereum: Why Segregated Witness (SegWit) Transactions Are Cheaper Than Legacy Transactions
In the world of cryptocurrency, transparency and efficiency are key to a successful online payment system. Two popular cryptocurrencies that aim to achieve these goals are Ethereum and Bitcoin, each with its own set of transaction fees. One of the primary differences between these two cryptocurrencies lies in their implementation: Segregated Witness (SegWit) transactions versus legacy (non-segregated) transactions.
What is SegWit?
SegWit is a modified version of Bitcoin’s Lightning Network that allows for more efficient and cost-effective transactions. The core idea behind SegWit is to reduce the number of transactions required to transfer funds, thereby decreasing fees. This innovation was introduced in 2017 by Ethereum co-founder Vitalik Buterin.
Why are SegWit transactions cheaper?
So, why do SegWit transactions seem cheaper compared to legacy Bitcoin transactions? The main reason lies in the way transactions are structured and optimized for both systems.
- Transaction size reduction: SegWit allows for a 6,400-byte limit on transaction data, which is significantly smaller than the 2,048,571-byte limit of non-segregated transactions (legacy). This reduced space usage translates to lower computational costs and faster processing times.
- Optimized data structure: SegWit uses a more efficient data structure for representing transactions, called “block headers.” These block headers contain a condensed version of the transaction’s input and output values, making it easier to process and verify transactions.
- Faster confirmation times: By reducing the number of transactions required to confirm a single transaction (the “block size” in Bitcoin), SegWit enables faster transaction processing times compared to legacy.
Why do legacy addresses have higher fees?
Now that you know why SegWit is cheaper, let’s dive into why legacy addresses still incur higher fees. The primary reason lies in the way legacy transactions are structured and optimized for both systems:
- Increased computational complexity: Non-segregated transactions require a more complex data structure to represent the transaction’s input and output values, resulting in increased computational costs.
- Additional gas fees: Legacy transactions often include additional “gas” fees associated with transaction processing, which can add up quickly. These fees are calculated based on factors like network congestion, transaction complexity, and block size limits.
- Network congestion: Legacy networks tend to be more congested than SegWit-enabled networks, leading to longer transaction times and increased gas fee costs.
What about Ethereum’s fees?
Ethereum’s design is a bit more complex than SegWit, with its native cryptocurrency, Ether (ETH), being the primary driver of network congestion. However, Ethereum has implemented various measures to reduce fees:
- Gas pools: Gas-pooling platforms allow users to pool their transactions and share computational resources, reducing individual transaction times.
- Circuit programming: This innovative technique enables developers to create custom programs that execute multiple transactions in a single block, significantly reducing gas usage.
Conclusion
In conclusion, the differences between SegWit and legacy Bitcoin transactions can be attributed to the design choices made by each system’s creators. While SegWit is optimized for efficiency and cost-effectiveness, legacy addresses still incur higher fees due to increased computational complexity, additional gas fees, and network congestion.
As the cryptocurrency landscape continues to evolve, understanding these differences between SegWit and legacy transactions will become increasingly important for developers, traders, and users alike.