CS120: Bitcoin for Developers I

As we can see from the previous examples, upgrading to Segregated Witness is a two-step process. First, wallets must create special segwit type outputs. Then, these outputs can be spent by wallets that know how to construct Segregated Witness transactions. In the examples, Alice's wallet was segwit-aware and able to create special outputs with Segregated Witness scripts. Bob's wallet is also segwit-aware and able to spend those outputs. What may not be obvious from the example is that in practice, Alice's wallet needs to know that Bob uses a segwit-aware wallet and can spend these outputs. Otherwise, if Bob's wallet is not upgraded and Alice tries to make segwit payments to Bob, Bob's wallet will not be able to detect these payments.

Tip: For P2WPKH and P2WSH payment types, both the sender and the recipient wallets need to be upgraded to be able to use segwit. Furthermore, the sender's wallet needs to know that the recipient's wallet is segwit-aware.

Segregated Witness will not be implemented simultaneously across the entire network. Rather, Segregated Witness is implemented as a backward-compatible upgrade, where old and new clients can coexist. Wallet developers will independently upgrade wallet software to add segwit capabilities. The P2WPKH and P2WSH payment types are used when both sender and recipient are segwit-aware. The traditional P2PKH and P2SH will continue to work for non-upgraded wallets. That leaves two important scenarios, which are addressed in the next section:

• Ability of a sender's wallet that is not segwit-aware to make a payment to a recipient's wallet that can process segwit transactions
• Ability of a sender's wallet that is segwit-aware to recognize and distinguish between recipients that are segwit-aware and ones that are not, by their addresses.