CS120: Bitcoin for Developers I

Segregated Witness is a significant change to the way outputs and transactions are architected. Such a change would normally require a simultaneous change in every bitcoin node and wallet to change the consensus rules – what is known as a hard fork. Instead, segregated witness is introduced with a much less disruptive change, which is backward compatible, known as a soft fork. This type of upgrade allows non-upgraded software to ignore the changes and continue to operate without any disruption.

Segregated Witness outputs are constructed so that older systems that are not segwit-aware can still validate them. To an old wallet or node, a Segregated Witness output looks like an output that anyone can spend. Such outputs can be spent with an empty signature, therefore the fact that there is no signature inside the transaction (it is segregated) does not invalidate the transaction. Newer wallets and mining nodes, however, see the Segregated Witness output and expect to find a valid witness for it in the transaction's witness data.