The bitcoin community continues to debate Segregated Witness, the Bitcoin Core development team’s proposed scaling solution which would separate signature data (witnesses) from transaction data. There are numerous risks with SegWit, but one in particular needs more attention: SegWit opens the door to methods of collusion and mining cartels which could undermine the bitcoin network.

Protections of the Current Bitcoin Protocol

To understand how SegWit opens this door, let’s review the format of the bitcoin protocol. The way that bitcoin works allows for a large miner who has managed to gain more than 51% of the network to engage in a form of attack based on double spending an existing transaction. This works in the following manner:

“Even if a bad guy does overpower the network, it’s not like he’s instantly rich. All he can accomplish is to take back money he himself spent, like bouncing a check. To exploit it, he would have to buy something from a merchant, wait till it ships, then overpower the network and try to take his money back. I don’t think he could make as much money trying to pull a carding scheme like that as he could by generating bitcoins. With a zombie farm that big, he could generate more bitcoins than everyone else combined.