Bitcoin’s SegWit Divide and What Exchanges Are Doing About It

It is a common occurrence to see exchanges posting work reports and their overall growth. However, as Shakespeare would say, “To speak is not to do. It is a kind of good deed to say well; and yet words are not deeds.

Well, a recent report published by Glassnode revealed something along those lines. Surprisingly, it has been revealed that a huge difference persists between SegWit adoption and SegWit usage among major exchanges.

Segregated Witness (SegWit) is a soft fork upgrade that separates “witness” data from the base transaction. Simply put, it refers to a change in Bitcoin’s transaction format. SegWit, introduced in 2017, enables safer and faster Bitcoin. Thus, facilitating network scaling.

Here it is interesting to note that exchanges are responsible for around 40% of all the block space consumed on the Bitcoin blockchain. Therefore, their stance towards SegWit has a significant impact on the scalability of Bitcoin. In this context, it should be pointed out that Bitcoin’s block size spiked after the activation of SegWit.

Source: Glassnode

The “SegWit” revelation

According to research conducted by a blockchain data company (Glassnode), it has been found that the majority of exchanges have not yet succeeded in fully adopting SegWit.

Binance, the leading consumer of Bitcoin block space, had insignificant SegWit adoption rates of only 10% until the end of 2021. Although recently, adoption has reached around 50%. This number seems insufficient. Especially considering that Binance alone consumes around 15% of all Bitcoin block space.

Coinbase, on the other hand, responsible for 10% of the block space used, has already fully adopted SegWit. The table below highlights the evolution of SegWit adoption for major exchanges over time.

Source: Glassnode

Adoption of SegWit versus use

Only the top 18 exchanges were studied, according to Glassnode. Of which, six fell into the Tier One category and can be considered to have fully adopted SegWit. Interestingly, of the remaining 12 exchanges, six more fell into the Straggler category, meaning these exchanges are still struggling to adopt SegWit four and a half years after it was activated.

Source: Glassnode

Oddly enough, SegWit’s adoption metric also looks pretty nice. However, the SegWit usage metric has not yet increased. Exchanges need to pay attention to this sphere in order to keep the unintended malleability of Bitcoin transactions at bay.

Source: Glassnode