Cryptocurrency exchange BitMEX haved now enabled support for native segregated witness (SegWit) addresses for Bitcoin (BTC) withdrawals. Allowing their users to pay significantly lower transaction fees.
BitMEX announced on December 12th that they will now allow their users to withdraw Bitcoin to Bech32 addresses. The address format that natively supports the Segwit standard.
Address formats on the Bitcoin network
The Bitcoin network currently supports three types of address formats. The first one being Bitcoin’s original address format which is a public key hash (P2PKH), starting with a 1.
Pay to script hash (P2SH) is the second format. This format starts with a 3 and allows users to send Bitcoin to a secured address without knowing details about it. Including multi-signature wallets. This is the current type of addresses which BitMEX users can use to deposit their funds.
The last format is the Bech32 format, also known as the native SegWit format. These addresses start with bc1, and let users to take full advantage of the scalability of Segwit. Giving users lower fees and higher efficiency.
The announcement from BitMEX reads: “The key advantage of Bech32 addresses is that transaction fees can be saved when spending Bitcoin, which was already sent to a Bech32 address. Therefore this upgrade will not directly result in fee savings when customers withdraw from BitMEX, however in the next transaction, when the bitcoin already withdrawn from BitMEX is spent again, our customers may benefit from lower transaction fees.”
Additionally, when a user sends funds from an address that is not in the Bech32 format, there is about 20 bytes of data added to the transaction. The smaller amount of data sent in native SegWit transactions lower fee costs. And moreover allows the network to scale more.
What is SegWit? (Segregated Witness)
SegWit was an update implemented in August 2017 during the time Bitcoin Cash forked from the Bitcoin blockchain. It protects the network against malicious transactions while also increasing Bitcoin’s block capacity. The way Segwit does this is by separating the data needed to check the validity of a transaction from the rest of the transaction inputs.
SegWit also implemented another parameter that limits the block size to 4 million weight units. This allows the network to essentially accept blocks that are larger than 1 MB without a hard fork. Furthermore, Segwit was an update which was necessary for implementing the Lightning Network.
BitMEX are planning and additional wallet upgrade. This upgrade will enable non-native SegWit support for P2SH addresses.
“As explained above, SegWit can result in significant blockweight savings of around 25% to 40%, however in the case of BitMEX, the savings will be even higher. A BitMEX withdrawal is a 3 of 4 multi-signature P2SH transaction. […]. The benefits of applying the witness discount to these large transactions is far greater than for typical non-BitMEX transactions. Therefore BitMEX would benefit from a blockweight saving of around 65% by adopting SegWit. ”
SegWit support is constantly increasing in acceptance, as other major cryptocurrency exchanges such as Bitfinex have also added support for Bech32 addresses.