SegWit and Native SegWit (Bech32) -What’s the Difference?

If you’re feeling bombarded with technical terms? Don’t worry – we’ve got you covered. Read on for an explanation of Segwit and Native SegWit in plain English.

As Ledger users might have noticed, when adding a Bitcoin account in Ledger Live you are presented with two options: a Native SegWit account and a SegWit account. While one can easily tell the difference between a Native SegWit address (starting with “bc1”) and a SegWit address (starting with “3”), we’d like to take a closer look at what this exactly means.

SegWit (P2SH) and Native SegWit (bech32) are not the first address formats to exist for Bitcoin accounts. The very first one was Legacy, where addresses would start with a “1”. As Bitcoin’s price started to take off, the fees paid for each transaction started to look more pricey too. As a matter of fact, the transaction speed was on the slower side as well.

Thus SegWit entered the field

The SegWit (Segregated Witness) proposal was strongly contested at the time – in fact, the initial proposal known as SegWit2X was actually dropped and replaced with what we now know as SegWit. In August 2017, the soft fork implementing SegWit took place. Its adoption has quickly been taken up since and it started becoming the new standard.

So what did SegWit change?

SegWit – also referred to as Wrapped or Nested SegWit – reduced the size of each transaction’s data. It did this by separating certain data of the transaction signature from the transaction. By making transactions lighter in size, more transactions can fit into a single Bitcoin block. This in turn makes the Bitcoin network more scalable and its transactions faster. Even more, it immensely reduces the transaction fees for each Bitcoin transaction! SegWit also enabled second layer scaling solutions, leading to the birth of the Lightning Network.

SegWit vs. Native SegWit

Native SegWit – also known as bech32 – is the latest step in the address formats. It is even more weight-efficient than its predecessor. This means having an even faster transaction speed versus SegWit transactions, better scalability and even lower fees per transaction. To add to this, bech32 has better error-detection and makes addresses lowercase only for better readability. This is why it’s the most popular option… if present.

The only downside of bech32 is that not every major platform supports this address format yet. While transactions between Legacy, SegWit and Native SegWit addresses are fully compatible, there are still quite a few exchanges and wallet providers that don’t support sending BTC to a bc1 address yet. As such, when you add an account on Ledger Live you will be presented with both the possibility of adding a Native SegWit and/or a SegWit address.

So you’re into crypto, and you like the nuts and bolts? We have just the thing for you! Check out our School of Block episode on blockchain use cases.