GDAX Announce Full SegWit Support, Network Fees Continue to Fall

GDAX, the trading arm of cryptocurrency brokerage Coinbase, announced today that they will implement full SegWit support for Bitcoin transactions in the coming days. The protocol upgrade aims to make transactions quicker and cheaper for users of BTC.

GDAX Joins Coinbase and Bitfinex

GDAX are the latest of the cryptocurrency industry’s major players to offer support for SegWit. They follow their parent-company Coinbase and Hong Kong-based exchange Bitfinex in rolling out the upgrade. GDAX made the announcement earlier today via their blog:

“We are excited to announce that GDAX now supports Segregated Witness (SegWit) transactions on the Bitcoin network. Over the coming days, full support for SegWit transactions will be rolling out to 100% of our customers. SegWit is a critical step forward in the development of Bitcoin and we are thrilled to support it on GDAX.”

The post went on to explain how the SegWit (or Segregated Witness) upgrade works. Put simply, the transaction data is split using SegWit. This makes it possible to only store necessary transaction data on the blockchain. With transactions requiring less information be included on-chain, more of them can fit into each block. This, in turn, reduces the need for users to increase their transaction fees. Previously, when the blockchain was full, users would be required to use a large fee if they wanted the network to validate their transaction before others also waiting. This forced users to continually increase their fees until they reached the point where some declared the network as “broken“.

Later in GDAX’s post, they state that the address format that they will use will be compatible with all existing BTC addresses. All withdrawals from GDAX will, therefore, be sent using SegWit.

The company are careful to point out that the new format will no longer be the same as Bitcoin Cash (BCH) addresses, however. This means that if BCH is sent to GDAX’s BTC address, the funds will be lost forever. To reduce the likelihood of this occurring, an additional warning will be displayed when making deposits to the exchange. It will read:

“Only send Bitcoin (BTC) to this address.

Sending any other digital asset including Bitcoin Cash (BCH) or Tether will result in permanent loss of funds.”

GDAX go on to state their commitment to providing customers with the latest Bitcoin upgrades. They claim to be currently working on additional scalability improvements to help further reduce fees and increase the network’s capacity. These include “transaction batching and UTXO management.”

Finally, GDAX are appealing to anyone interested in working on scalability protocols such as the Lightning Network to contact them. They are currently hiring staff in New York, London, and San Francisco.

Since the announcement earlier this week that both Coinbase and Bitfinex have also implemented SegWit transactions, transaction fees on the Bitcoin network have fallen to historic lows.

Evidently, SegWit is helping to ease congestion on the Bitcoin network and this in turn is restoring the original cryptocurrency’s usability. As additional companies and wallet providers begin to integrate the upgrade, and more scaling techniques become available, the utility of the Bitcoin network is only set to grow.


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SegWit Adoption

SegWit adoption has been steadily rising since its release in August 2017, albeit not as quickly as some would like. The problem is that it has to happen piece by piece, with each wallet, exchange, or other service provider rolling out the compatible address itself. Because each organization has both its own type of process — as well as its own issues — SegWit adoption has not happened overnight.

This phenomenon explains why the number of SegWit transactions still vary, accounting for between 10 to 20% of total transactions — though that percentage is set to increase. The protocol has already garnered some impressive results: As of today, February 20th, SegWit transactions account for almost 14% of the total — it peaked a few weeks ago when the transactions made up more than 18% of the total for the first time since activation.

As noted above, that percentage is likely to increase soon with announcements today from global leading exchanges Coinbase and Bitfinex confirming their adoptions of SegWit. Among other notable providers that have unrolled the protocol are: Shapeshift, Ledger wallet, TREZOR, Samourai wallet, and Edge Wallet. Several others have deployed SegWit, too, like the Kraken exchange and the CoinMall marketplace. 

Bitfinex

As for users of SegWit enabled exchanges like Bitfinex, the most noticeable changes in the short term will be, simply, a more efficient transaction process, with decreased transaction fees and improved speed — as a result of being able to fit more SegWit transactions in Bitcoin blocks. According to the company’s blog post today, the SegWit implementation means Bitfinex users “can benefit from lower BTC withdrawal fees (approximately 15%) and improved processing times on transactions across the Bitcoin network.”

Bitfinex CEO Paolo Ardoino puts it as follows:

“As a premier exchange, Bitfinex is committed to improving its market-leading offering for our loyal and discerning customers. SegWit provides not only an immediate benefit for users but also a foundation for future Bitcoin development. By supporting SegWit addresses, Bitfinex is tackling three of the biggest crypto-enthusiast concerns: transaction fees, transaction speed, and total network capacity. We are delighted that through this implementation we can provide our customers with bitcoin withdrawal fees that are up to 20 percent lower, as well as faster-than-ever transaction speeds.”

Lightning Network

In the context of the Bitcoin scaling issues, it’s important to discuss the development of another promising concept: Lightning Network (LN). Being initially introduced with the aim to, simply, make the Bitcoin network more useful, LN is a decentralized network of payment channels which permit users to make micropayments between two parties without the need to broadcast directly to the blockchain. As a result, transaction fees are decreased and the speed of the whole payment process is too.

Cryptocurrency idealists have envisioned Bitcoin becoming a sort of “free banking” system from the start. Consider LN in that context: Just like people don’t have to carry around weights of gold to engage in commerce, Bitcoin users need not clear all transactions “on-chain” to enjoy the benefits of the digital currency. With LN, they can transact using the network and clear their balances on the underlying blockchain — just like how people exchange gold-backed notes with banks. The most exciting part, in this example, is that rather than needing to rely on an intermediary bank, LN permits people to act on their own.

Today, Coinbase — cryptocurrency exchange, brokerage, wallet, and operator of GDAX — and Hong Kong-based exchange Bitfinex have announced the implementation of P2SH Segregated Witness (SegWit). As per the companies’ tweets, users will experience improved transaction processing times and lower fees across the Bitcoin network.

For Coinbase, this process began in December, when vice president and general manager Dan Romero indicated to investors and users that the exchange would adopt the SegWit protocol in early 2018

The protocol, an oft-debated measure introduced as a means of scaling Bitcoin to meet increased demand, is expected to decrease congestion in the cryptocurrency’s network, resulting in faster transaction times and lower fees.

Fees have been a huge problem for Bitcoin users — although they have fallen to recent lows at an average of $0.79 on Sunday. In December, amidst an upsurge in use and value of the cryptocurrency, prices reached peaks of up to $34.00.

What is SegWit?

SegWit is a Bitcoin protocol improvement that facilitates scaling. The SegWit implementation will provide Coinbase and Bitfinex users with lower transaction fees and improved processing times on transactions across the Bitcoin network. This happens by increasing block size limits by separating signature data from transaction data.

In addition to increasing capacity, SegWit will also effectively fix transaction malleability, a potential attack based on the modification of transaction IDs prior to network confirmation. Further, SegWit also lays the foundation for future Bitcoin development efforts like the implementation of Lightning Network, which will permit the network to process millions to billions of transactions per second.

Looking ahead

Moving forward, the question is what will happen as the Bitcoin network continues to grow. A hard-coded limit on the size of blocks limits how many transactions the network can process per second.

Some in the bitcoin community wanted to simply raise the block size — see Bitcoin cash. Instead of increasing the maximum block size, SegWit separates cryptographic signatures from the rest of the blockchain data, so these signatures aren’t counted against that one-megabyte block-size limit — consider it a de facto block-size increase.

That said, SegWit is not the be all end all: If 100% of transactions use the new protocol, it will roughly double the network’s capacity — but that’s it. Further increases will require more radical changes.

Coinbase

Romero said the exchange has carefully considered the implications of adopting SegWit:

“In terms of our engineering priorities, securely storing customer funds remains our top priority. Our next priority is to ensure that our platform remains performant during periods of peak volume,” Romero said.

The adoption of SegWit is a huge undertaking for the Coinbase because its platform is much larger than most other digital currency exchanges. The exchange has millions of users active each month, and it accounts for a significant portion of all Bitcoin trading. This means the impact of its decision to adopt SegWit could have repercussions on the entire cryptocurrency space.

Bitcoin is undergoing some big changes as we speak. In the latest client update, SegWit becomes enabled by default. It is a big step forward to improving the scalability of this cryptocurrency ecosystem.

Boosting SegWit Adoption

Quite some time ago, the Bitcoin network was slated to receive a scaling update. Known as Segregated Witness, the solution was not to everyone’s liking. It ended up splitting the Bitcoin community into two separate camps altogether. As such, the “use” of SegWit has always remained abysmal. The people who did not agree with SegWit eventually hard forked Bitcoin to create Bitcoin Cash. That altcoin uses a direct block size increase to improve overall transaction throughput.

Increasing SegWit adoption has not been easy since that “split”, though. Roughly 12% of all network transactions make use of this scaling solution. A lot of service providers have struggled to integrate Segregated Witness into their existing code. It now seems that struggle will finally come to an end.

With the latest 0.16 Bitcoin Core client, SegWit support is enabled by default. The user wallet interface allows anyone to use this scaling solution without tinkering or advanced knowledge. Making this scaling solution more approachable has been a battle of its own kind over the past few months.  If enough users upgrade to the new client, we may finally see things improve for the Bitcoin network as a whole.

The Rising Bitcoin Price

For service providers, this upgrade will be considered to be a welcome change. Although this is a user-oriented SegWit solution first and foremost, exchanges and wallet providers will benefit from it as well. More specifically, the integration of this scaling solution may go a lot smoother. It will take some time until SegWit becomes the default solution on the Bitcoin network.  

This news comes at an interesting time for Bitcoin. After a slump during the first six weeks of 2018, the Bitcoin price is rebounding strongly. It seems money is flowing into all cryptocurrencies once again. If Bitcoin can become a peer-to-peer currency again, this value will only continue to skyrocket. At the same time, the market price is mainly based on speculation first and foremost.

A switch to SegWit-by-default may also improve merchant support again. Several companies dropped Bitcoin support over the high fees and transaction delays. If those are non-issues in the future, spending the world’s leading cryptocurrency will become easier again.  Additionally, the Bitcoin Dominance Index has been on the rise as well. Right now, Bitcoin is one of the strongest climbers in all of cryptocurrency. Even so, we will have to wait and see how things evolve as far as this new update is concerned.

All Bitcoin service providers struggle with the world’s leading cryptocurrency right now. More specifically, network congestion and high fees make Bitcoin virtually unusable. Coins.ph plan to address is this issue with a  two-pronged approach. First of all, they will [finally] enable SegWit-based transactions. Secondly, they may integrate Bitcoin Cash very soon. Both options are equally viable in this regard, yet it remains to be seen which option will win out.

It is evident any company dealing with Bitcoin needs to rethink its strategy. The high network fees make it an unfavorable cryptocurrency to use. There are multiple ways to address these problems, although only a few viable options remain. First of all, focusing on implementing SegWit would be a good start. Coins.ph want to give this option a try in the near future. Right now, they are dealing with too many overhead costs to keep the service running in its current form.

Coins.ph Continues to Grow and Evolve

Another option contemplated by the company is supporting Bitcoin Cash. That in itself is a rather surprising decision, but it also makes a lot of sense. Unlike BTC, BCH has lower fees and a more reliable network. It forces companies to closely ponder how they want to evolve their business. Until Bitcoin’s scaling issues are sorted, we will see more of these stores, unfortunately. Customers of the company have been complaining about the high fees and network delays for some time now.

For the time being, the Bitcoin mempool is clearing out pretty quickly. More specifically, the number of unconfirmed transactions is dropping. It was over 220,000 late last week. Right now, we are back in the five-digit range. Although there is still plenty of work to be done, the situation is slowly improving. Whether or not the high fees will subside, remains to be seen, though. For now, it is still a pretty problematic scenario.

Additionally, Coins.ph had some good news to report as well. More specifically, the company obtained a license as an electronic money issuer. This means the company can legally accept and hold customer funds in The Philippines. A very interesting development to keep an eye on moving forward. This is still a very prominent region for future Bitcoin and cryptocurrency adoption. With this license in the pocket, the company continues to adhere to existing regulations.

Everyone knows the Bitcoin transaction fees always spark new debates. In most cases, those discussions are not going all that well. Tony Gallippi, the CEO of BitPay, isn’t a big fan of this situation either. Instead, he points out how over half of the current Bitcoin wallet is unable to spend their balance. This is mainly due to the balances being lower than the actual transaction fees. There is some backlash over this statement, as cheap transactions work just fine.

Conflicting opinions on Bitcoin fees are nothing new under the sun these days. We see debates like these pop up virtually every week. Surprisingly, BitPay CEO Tony Gallippi isn’t doing much to alleviate the concerns. While his complaint on Twitter is about fees, his company is partially responsible for the high fees as well. In his opinion, the average transaction cost is now 100,000 Satoshis. That is not entirely true, even though it may be the average charged by BitPay.

BitPay CEO Complains About Fees

It is certainly possible to have low-fee transfers confirmed as well. Any decent service that allows users to set their own costs gets transactions confirmed pretty quickly. The services which did integrate SegWit seem to have very few issues when it comes to these fees. BitPay hasn’t done so just yet at this point in time. Considering it is the largest Bitcoin payment processor, one would expect bigger and better things. So far, nothing has changed in this regard.

Gallippi further confirms over half of the existing Bitcoin wallets can’t spend the balance. More specifically, 57.26% of all addresses have less than 100,000 Satoshi in their balance. That is a surprisingly low amount of money, even though its value has gone up steadily. With the current network fee of 30 Satoshi per byte, these addresses can spend money just fine, though. The average fee is often calculated based on recent blocks. There will always be people who overpay for their transactions. Again, this is mainly driven by companies refusing to integrate SegWit in a timely manner.

At the same time, some people point out it is a good way to store value. If funds are unspendable , it can’t be used to influence the Bitcoin price. It is not a comparison most people would like to see, mind you. This situation isn’t sustainable in the long run and something needs to change sooner rather than later. How this change will be enforced, remains to be determined. Transaction fees are kept artificially high by various entities as well. An interesting situation, although one that will only cause more trouble unless properly resolved.

The activation of Segregated Witness on the Bitcoin network hasn’t done too many favors so far. The number of SegWit-capable transactions is still incredibly low. Without proper support form wallets and other service providers, this will not change. According to the charts, less than 10% of all transactions use this scaling solution. It is a very worrisome trend, to say the very least. Solving this problem will not be easy by any means.

Segregated Witness is designed to make Bitcoin scale in a major way. After a full year of opposition, the solution has now been active on the network. In fact, it has been for several months already. For some reason, there is a low number of SegWit transactions on the Bitcoin blockchain. This number is decreasing below 10% once again as well. For some reason, the lack of native support is not being resolved whatsoever. This has been a problem for many months now and only gets worse.

SegWit Adoption Struggles to Surpass 10%

According to recent statistics, less than 10% of Bitcoin transactions use Segregated Witness. Although this is not a big change compared to a while ago, it’s not positive either. Some blocks show a slightly higher percentage, but it’s pretty bleak overall. Until service providers and wallets finalize integration, the number will not change. These companies have struggled to finalize this process. Not entirely surprising, as the code is still pretty messy right now.Integration this project has been cumbersome, to say the least.

It is unclear if any big changes will occur before the year is over. Until we see some big improvements, the Bitcoin ecosystem will continue to struggle. Moreover, it also shows the Bitcoin Cash team may not have been entirely wrong in their decision. Scaling comes in many different ways, although SegWit seemingly presented the best solution. It seems a lot of people tend to disagree, otherwise, we would have seen better integration already. A very problematic turn of events, to say the very least.

It will be interesting to see how this situation evolves in the coming weeks and months. Bitcoin can easily be attacked with spam transactions.  Such an attack occurred not too long ago. Without a real scaling solution, issues like these will continue to occur on a regular basis. A solution has to be found sooner or later. That is much easier said than done, unfortunately.

Jameson Lopp, a prominent bitcoin developer and lead engineer at BitGo, revealed that some of the largest customers using bitcoin and blockchain security services of BitGo are saving as much as $100,000 on a monthly basis in transaction fees due to SegWit.

Does SegWit Actually Decrease Transaction Fees?

By reducing the size of bitcoin transactions, SegWit decreases fees by at least 35 percent, as major bitcoin hardware wallet manufacturer Ledger revealed.

“When computing a Segwit signature, the previous transactions do not need to be processed by the device, and each input is only processed once during the signature process, leading up to a 60% time optimization in the signature process. Segwit introduces the concept of block weight which changes the way the transaction size is computed by splitting the signatures in a different area — you can typically save 35% of the fee paid when sending a transaction immediately,” explained the Ledger development team.

Bitcoin users depending on SegWit-enabled platforms such as Ledger, Trezor, and ShapeShift likely have experienced substantial decrease transaction fees and overall optimization of the bitcoin blockchain over the past few weeks. Most recently, ShapeShift became one of the leading bitcoin service providers and exchanges to integrate SegWit, which has had a major impact on the adoption of SegWit as ShapeShift processes around three percent of the bitcoin network’s transactions.

Transaction fees of bitcoin are still high because the adoption of SegWit has been stalled by major bitcoin and cryptocurrency businesses that have not integrated SegWit upon its release. Unlike Ledger and Trezor, some of the most widely utilized bitcoin wallet and trading platforms such as Blockchain and Coinbase have not implemented SegWit.

Blockchain CEO Peter Smith Does Not See Scaling in SegWit

Earlier this week, Peter Smith, the CEO at Blockchain, the most popular bitcoin wallet platform in the bitcoin industry, criticized the “centralization of bitcoin” and expressed his unenthusiastic stance towards SegWit.

Smith stated:

“Trend over last few years in bitcoin is increasing centralization. More coins within fewer entities / systems, fewer mining hw manufactures & pool ops, fewer Core devs with decision making agency. Sadly, likely trend will accelerate partly due to high fees and other system pressures.”

In a response to Alan Silbert’s inquiry on Blockchain’s process of integrating SegWit, Smith added, “Where are these lower fees? BitGo has SegWit. BitGo customers still paying higher fees than pre-SegWit.”

However, the statement of Smith was immediately refuted by BitGo lead engineer Lopp, who emphasized that the company’s customers have been saving $100,000 per month with BitGo’s SegWit-enabled bitcoin transaction processing platform.

Evidently, in the upcoming months, as the bitcoin price increases exponentially and the user base of bitcoin rises at an unprecedented rate, on-chain scaling will be necessary to further decrease bitcoin transaction fees. But, since SegWit was activated as a scaling solution, the industry should at least attempt to see SegWit through by integrating it and optimizing the bitcoin blockchain.

It is that time of year again when the Bitcoin transaction fees are on the rise. We have seen this problem occur multiple times already. Right now, the median fee is $4.23, which is ridiculously high. It may even result in a new all-time high. Not the good kind, though, that much is certain. Rest assured this development will spur a lot of new debates in the coming days and weeks.

Bitcoin transaction fees have become a major problem over the past two years. Even the introduction of SegWit doesn’t alleviate these concerns. Then again, a lot of wallets still have to enable default SegWit transactions these days. With the median transaction fee on the rise again, things are looking problematic. Right now the media fee is almost three times higher compared to two weeks ago. This sudden rise is quite worrisome, to say the very least.

Bitcoin Transaction Fees are on the Rise Again

As is always the case, there has to be an explanation. Miners artificially propping up fees by not including transactions is one option. A spam attack against Bitcoin could be another. Neither of these seems to be entirely valid, as there is no abundance of transactions either. These ups and downs on the charts have been visible all year. Nothing seems to be out of the ordinary whatsoever. Nor is the mempool clogged up in any significant manner, either, although things looked a bit worse last night.

Regardless of the reason, the fees are rising. It is a very big problem that makes Bitcoin look less appealing. Spending a few bucks to move Bitcoin isn’t competitive by any means. In fact, it doesn’t even make it more appealing than most altcoins in this regard. Solving this issue will not happen with SegWit2x either. That is, assuming this hard fork will effectively be mined. Given some recent developments, that may or may not be the case in the end.

We can only hope the transaction fees return to normal soon. More importantly, they need to stay low for the foreseeable future. Until every service provider uses SegWit by default, that will not happen. No one knows how long this will take moving forward. We can only make Bitcoin work if everyone gets on the same page at the same time. Right now, that is not happening. With a fractured Bitcoin community, the future looks rather bleak in this regard.

Header image courtesy of Shutterstock

Within the past week, the percentage of Segregated Witness (SegWit)-enabled transactions in the Bitcoin network has increased from 9 percent to 14.45 percent, decreasing Bitcoin transaction fees, the size of the Bitcoin mempool, and blocks.

In June, prior to the integration of SegWit, the Bitcoin Core development team’s scaling and transaction malleability solution, the size of the Bitcoin mempool remained at over 150 million bytes. Such high level of blockchain congestion and large amount of unconfirmed transactions led to a significant increase in transaction fees.

Since then, as Bitcoin wallet platforms, exchanges, and users continued to adopt SegWit, the size of the Bitcoin mempool dropped from 150 million to 6 million bytes. The average Bitcoin block size also decreased from 1MB to 0.84.

SegWit is a scaling solution that provides more capacity to the Bitcoin network and blockchain by reducing the size of Bitcoin transactions. Unlike a hard Bitcoin block size cap, SegWit scales the Bitcoin blockchain network through user and business adoption. As the transaction percentage of SegWit-enabled payments increase beyond 50 percent, SegWit will allow the average Bitcoin block size to decrease even further, creating a more flexible and scalable Bitcoin ecosystem.

In the past few days, leading Bitcoin wallet platforms such as Blockchain have been recommending an average fee of $0.06 for median transactions, ot 10 satoshis per byte. In June, Blockchain recommended users to attach 400 satoshis per byte fees. Through that metric alone, it is evident that SegWit has had a significant impact on Bitcoin’s short and mid-term scalability.

In the long-term, SegWit will not be sufficient to completely scale the Bitcoin network. Hence, Bitcoin developers and the open-source development community are exploring innovative solutions, both on-chain and second-layer infrastructures, to provide an efficient network for transaction settlement. Ethereum is also taking a similar approach, developing solutions like Plasma that technically function like SegWit; removing unnecessary information and providing more privacy.

The recent surge in the adoption rate of SegWit can be attributed to the integration of SegWit by ShapeShift, one of the most widely utilized cryptocurrency exchanges that accounts for around 3 percent of Bitcoin transactions. As more platforms such as Blockchain and Coinbase integrate SegWit, the size of Bitcoin transactions will decline and eventually, lead to less fees for users to handle.

In August, leading Bitcoin hardware wallet manufacturer Ledger revealed that SegWit will result in around 35 percent reduction in fees for Bitcoin users, due to its mechanism that enables service providers like Ledger to reduce the transaction signature verification period.

“Segwit introduces the concept of block weight which changes the way the transaction size is computed by splitting the signatures in a different area — you can typically save 35% of the fee paid when sending a transaction immediately. When computing a Segwit signature, the previous transactions do not need to be processed by the device, and each input is only processed once during the signature process, leading up to a 60% time optimization in the signature process.”

It is entirely possible that SegWit could reduce Bitcoin fees above the 35 percent mark, if the adoption rate surpasses 50 percent.

Image Credit: Jonathan Pincas, For commercial use