Segregated Witness (or SegWit) is a Bitcoin protocol extension. It was activated on August 2017. SegWit was introduced to improve the scalability and usability of the Bitcoin blockchain. SegWit activated the Bitcoin network in response to congestion issues caused by users overfilling the block size of Bitcoin blocks.
SegWit has two key variables that help to reduce congestion and increase network throughput. The first allows for smaller transactions, so more transactions can fit in a given amount of block space. The second key variable allows for larger blocks which allows more transactions to fit into each block. These improvements together increase the overall throughput for the Bitcoin network.
40% of all Bitcoin blockspace is consumed by exchanges
In a new article, Blockchain analysts Glassnode have examined the adoption rate for SegWit by major crypto exchanges. Exchanges are crucial to SegWit adoption because they consume large amounts of Bitcoin blockspace. If exchanges adopt SegWit, this will reduce blockspace consumption and contribute significantly to the overall performance of Bitcoin.
Glassnode estimates that exchanges account for 40% of all block space consumed. Their stance towards SegWit can have a significant effect on Bitcoin’s scaling. Binance and Coinbase account for approximately 25% of blockspace consumed.
Blockspace consumption in exchange
Glassnode found that the majority of exchanges have not fully adopted SegWit. This includes Binance who is responsible for about 15% of Bitcoin blockspace.
Pioneers, Stragglers, and Holdouts
Glassnode’s study examines the flow of Bitcoin transactions into and out exchanges and how they use SegWit. The study segments the exchanges into three groups: Pioneers, Stragglers, and Holdouts.
18 exchanges were investigated. Six have adopted SegWit fully, six have struggled with large-scale SegWit usage and six exchanges made very little effort to adopt SegWit.
Coinbase is a particular example of this, as the exchange consumes 10% of all Bitcoin blockspace consumption. This has brought about near full SegWit adoption.
“Binance had trivial SegWit adoption.”
Binance and Coinbase are the largest block space users of all exchanges. Around 15% of block space is consumed by transactions to and from Binance.
The study revealed:
“Binance had trivial SegWit adoptions rates of 10% until the end 2021. Despite this, adoption is now at around 50%. This seems insufficient, especially considering Binance consumes approximately 15% of all Bitcoin blockspace.”
Index segwit ranking
The study found that 18 exchanges are included in these cohorts. They also fall in order of SegWit adoption.
Over 90% SegWit adoption by Pioneers: Kucoin (Coinbase), Luno, Kraken, Bitstamp, Luno, Kraken, Bitstamp, Kucoin and Coinbase. Holdouts with less that 20% SegWit Adoption: Okex, Bithumb and Bittrex, Huobi and Poloniex.
Okex is the only one of the Holdouts exchanges that has made at least a nominal attempt to adopt SegWit. This is not true for any other exchanges that are “clearly signaling a lack interest in upgrading their infrastructure to benefit the wider Bitcoin network.” The study concludes.
Only 6 out of 18 exchanges have fully implemented Bitcoin SegWit update CryptoSlate.
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