What Is The Witness Discount?

The witness discount refers to the reduction in data “weight” given to the witness portion of a Bitcoin transaction — the part that contains the signatures used to prove ownership. Implemented as part of the 2017 segregated witness (SegWit) upgrade, this discount effectively lowered the fees for SegWit transactions by making the witness data count for less when calculating the total size of a transaction.

In simpler terms, the witness data gets a 75% discount, meaning that it only counts as one-quarter of its actual size when determining how much space it takes up in a Bitcoin block. This allows for more transactions per block and reduces costs for users who adopt SegWit-enabled wallets.

But why does the Witness Discount exist in the first place? What’s the point of giving the witness data this special treatment? The answer ties back to Bitcoin’s long-standing scalability challenges, and the need to increase transaction capacity without overhauling the network with a risky hard fork. In this article, we explore the purpose behind the witness discount, how it works, and why it continues to matter today.

Key Takeaways

• Witness Discount: A discount applied to the size of the “witness” (or signature) portion of a Bitcoin transaction, reducing fees.
• Part of SegWit: Witness discount is part of segregated witness (SegWit), which solved the long-standing transaction malleability issue and effectively increased Bitcoin’s block size.
• Scalability: It helps make Bitcoin transactions more efficient, allowing for more transactions per block.

Purpose of the Witness Discount

The witness discount was introduced as part of SegWit, a major upgrade to the Bitcoin protocol that separated the transaction data into two parts: the core transaction data and the witness data (mostly digital signatures). In essence, the witness data was given a “discount” in terms of how much it counts toward the overall block size.

Prior to SegWit, Bitcoin’s block size was capped at 1MB. SegWit brought an indirect block size increase by applying a lower “weight” to the witness data — thus enabling more transactions per block without exceeding the 1MB limit for non-SegWit nodes.

The witness discount accomplishes a crucial goal: It allows for more transactions to fit into a block while maintaining compatibility with older nodes that haven’t upgraded to SegWit.

How It Works

When a Bitcoin transaction occurs, the core elements of that transaction — such as the amount of bitcoin being sent and the addresses involved — are recorded. However, there’s another component called the “witness,” which stores the signatures that prove ownership of the transferred bitcoin.

• Pre-SegWit: Before SegWit, all parts of a transaction were treated equally in terms of how much space they consumed in a block.
• Post-SegWit: After SegWit, the witness data…