Saving Transaction Fee using Segwit — How to be a Bitcoin Ninja

There is lots of FUD these days on how bitcoin network is unsuitable for any transaction less than 1000USD and you should use altcoins for smaller purchases. While there was a period of high fees few months back, bitcoin still remains the most stable/secure and easiest way to spend cryptocurrency. Currently, even 10–30 cent transactions are getting confirmed in minutes and mempool queue is relatively empty. While such low fee conditions may not always be present, you can still pay much less fees and get your transactions confirmed by using segwit wallets.

Segwit Fee Saving

Let us do a quick comparison to see how much fee you can save by using segwit wallet. For normal bitcoin transactions, the priority depends on fee/(tx size). For segwit, a new concept called weight was introduced, so what matters now is fee / (virtual size) . This is explained in this wonderful post by Pieter Wuille.

The above shows the virtual size of various types of bitcoin transaction. I have referred to commonly used one input, two output transactions for various types. Here are the transaction ids for reference — Normal, Segwit in P2SH, Native Segwit. As you can see you can get a cool 38% discount using native segwit !! Using segwit wallet in fact has a two prong effect:

• You save on transaction fee
• You transaction is smaller taking less space. This allows more transactions to get into blocks. This reduces mempool congestion and decreases the average transaction fee, because you are now competing with less unconfirmed tx to get into blocks

A simple ranking system

I propose an easy way to find out the bitcoin expertise of a person. Just ask him/her to give you their bitcoin addresses. Depending on below rules you can easily figure this out:

Level: Apprentice.

Bitcoin Address: Address Staring with 1. Still using legacy wallet address. Probably also uses a web wallet !

Level: Warrior

Bitcoin Address: Address Staring with 3. Using multisig wallet or a Segwit in P2SH wallet . Knows his stuff and keeps his private keys in a dark place !

Level: Ninja

Bitcoin Address: Address Staring with bc1. Using native segwit wallet. You don’t want to mess with this guy !

I want to be a ninja — What do I do ?

You can start using segwit wallets right away! You can chose from variety of wallets like electrum, greenaddress, trezor etc. Please see this thread for the full list.

A bunch of wallets like electrum, samouri also support native segwit transactions (to addresses starting with bc1). You can refer to the complete list on the Bech32 adoption page. You can help Bech32 adoption in the bitcoin network. If you are receiving money from your friends/clients feel free to send them bc1 address.

On a public facing e-commerce website, you may still want to keep using Segwit in P2SH addresses. This prevents you from losing customers that may still be using older/legacy wallets that don’t support Bech32 yet. In electrum, you can do this by following this thread

— Cheers for Bitcoin, segwit and low transaction fees !