The Witness Discount & Block Weight

SegWit did not just change how transactions are structured; it changed how we measure the size of a Bitcoin block. It replaced the 1MB "Size Limit" with a 4 million "Weight Unit" (WU) Limit.

1. What is Block Weight?

To encourage users to move to SegWit and to make the network more efficient, the developers introduced a Witness Discount.

• Base Data: Every byte of inputs, outputs, and amounts costs 4 Weight Units.

• Witness Data: Every byte of signatures costs only 1 Weight Unit.

2. The Calculation

The "Weight" of a transaction is calculated as: $$Weight = (BaseSize \times 3) + TotalSize$$

Or, more simply: $$Weight = (BaseSize \times 4) + (WitnessSize \times 1)$$

3. Why the discount?

Signatures are the heaviest part of a transaction, but they are also the part that nodes can discard (prune) after they have been verified.

• By making signatures "cheaper" (1/4 the cost), SegWit encourages users to consolidate small inputs and use complex multisig setups without paying a massive fee penalty.

• It also effectively increased the block capacity from 1MB to roughly 1.7MB to 2.0MB (depending on how many people use SegWit).

4. Virtual Size (vSize)

Since we still want to think in "bytes" for fee calculation, we use Virtual Size: $$vSize = Weight / 4$$

• A Legacy transaction has no witness, so its vSize is equal to its actual size.

• A SegWit transaction has a vSize that is significantly smaller than its actual size on disk.

5. Economic Impact

Users paying with Native SegWit addresses (bc1q) pay up to 30-40% lower fees than users on Legacy addresses (1...) for the exact same transaction. This is a direct result of the Witness Discount.

Measurement	Unit	Limit
Traditional Size	Bytes	N/A (Obsolete)
Block Weight	Weight Units (WU)	4,000,000
Virtual Size	vBytes	~1,000,000

In the next section, we will compare Nested vs. Native SegWit.