4 Lessons Bitcoin Can Learn from Litecoin’s Segwit

Bitcoin reached a key technical and political milestone this week as the long-debated Segregated Witness (Segwit) scaling solution finally locked in.

Segwit supporters hope the milestone will bring a much-needed boost in transaction capacity while opening the door to more impactful scaling technologies in the long run.

However, Segwit has also had some controversy over the way it locks in. While Segwit has gained grassroots support from users, it has also been criticized by some forces that are powerful enough to split Bitcoin and form a new currency.

So what will happen when the Segwit code change actually goes live? We are not without precedent.

For example, after much debate between miners and users, the fourth-largest public blockchain network, Litecoin, successfully passed Segwit three months ago. As a result, many believe that Litecoin, a fork of the Bitcoin code, could serve as a testbed for Segwit, providing some realistic insights into Bitcoin’s Segwit adoption hurdles.

Here’s what some people close to Litecoin have to say:

1. Segwit is running on the Litecoin network (so far)

It’s important to note that Segwit is not currently experiencing any issues on the Litecoin network — as of mid-June, the Litecoin Foundation reported that Segwit is operating well with no “issues.”

This is noteworthy because the activation of Segwit on the Litecoin network has sparked much debate in the Bitcoin ecosystem.

Some have criticized Segwit for being too complex and putting the network at risk. For example, some have argued that if Segwit were activated (along with other future changes to Bitcoin), miners would be able to steal coins from certain types of addresses.

To test this claim, the Litecoin network conducted a test where a user created a $1 million Litecoin "bounty" using a Segwit address that anyone who breaks into the Segwit address can receive. The user also added a statement, "Let's see if Segwit is really "anyone can spend".

So far, no one has received the Litecoin in this address.

2. Segwit transaction numbers are growing

Litecoin Foundation directors Xinxi Wang and Franklyn Richards acknowledged that there have not been many Segwit transactions on the Litecoin network so far.

However, these executives' views are not entirely accurate.

Jochen Hoenicke, a computer science researcher at the University of Freiburg in Switzerland, explained the difficulty in counting Segwit transactions — if a transaction is sent “from” a Segwit-enabled wallet, you can mark it as a Segwit transaction, but if it is sent “to” a Segwit-enabled wallet, then you cannot mark it as a Segwit transaction.

In other words, transactions sent to a Segwit-enabled wallet look similar to another complex transaction type, which means they cannot be detected.

Therefore, Heonicke compiled a list of Litecoin Segwit transactions sent from wallets that support this new transaction type. According to his data, about 100 out of 10,000 Litecoin transactions per day are Segwit transactions.

3. Businesses are adapting to this change

While Heonicke acknowledged that the list was incomplete because of differences in how transactions were measured, he did notice a trend.

“As support for Segwit grows, the number of Segwit transactions is also increasing,” he said, pointing to hardware wallet Trezor’s announcement on June 7 to add Segwit as a default transaction type. He also said that daily Litecoin Segwit transaction volume is clearly rising (from almost zero to double digits).

As Litecoin wallets and exchanges take steps to support the Segwit code change, the number of Segwit transactions could be even higher. According to Litecoin director Franklyn Richards, other wallets, such as LoafWallet, are making progress on the Segwit upgrade.

In contrast, many Bitcoin wallets already support Segwit, and these wallet providers have been on board with the change over the past year, so Bitcoin may see more usage of this feature.

Richards also believes that there are important differences between Bitcoin and Litecoin that make Litecoin's need for Segwit less urgent than Bitcoin's. For example, Litecoin does not have the same high transaction volume as Bitcoin.

Richards said:

“Segwit is mainly used to relieve network congestion for Bitcoin, while Litecoin has not encountered network congestion.”

Litecoin companies are not as anxious as bitcoin companies to upgrade their software to support the Segwit change.

Wang Xinxi said:

“But I expect Segwit will likely see widespread adoption on the Bitcoin network soon after activation.”

4. Some wallets and users encounter difficulties

In addition to the metrics surrounding SegWit adoption, Hoenicke also pointed out a number of other “smaller” technical issues.

Due to a bug in the Litecoin mobile wallet Electrum-LTC, older versions of the software "crashed" when users sent Segwit transactions to the wallet.

Another issue Hoenicke pointed out is that for Litecoin, there will be confusion among users when changes are made. Because Litecoin is in the process of transitioning to a new address type, some users will need to convert between the two address types.

Hoenicke said:

“Some users inadvertently used this conversion tool to send Bitcoin to their Litecoin Segwit addresses and now must wait for Segwit to activate on the Bitcoin network.”

While businesses and users face specific issues, a poor user experience could lead to dissatisfaction in the Bitcoin community, especially after waiting and fighting for this change for so long.