The activation of Segwit on the Bitcoin network marks one of the biggest changes to the Bitcoin software. But when will we finally see lower fees and faster confirmation times?
Fees are higher than ever!
Segwit has promised us more usable space on the blockchain and therefore faster confirmation times with lower fees. But if you look up the recommended transaction fee for a bitcoin transaction (https://bitcoinfees.21.co/), you get the crazy number of 480 Satoshis/byte, which, for an average transaction of 226 bytes, means you have to pay 108,480 satoshis (4,60$) for a normal transaction!!! So what is happening here? Where are the lower fees?
Segwit will not decrease transaction fees
However, the average transaction size will decrease. Segwit introduces a new way of storing transactions on the blockchain, namely by storing the signature of the sender (which makes up almost 60% of the transaction size) in a seperate so-called extended block. This makes more room in the actual block to store more transactions. But in order to support this new kind of transaction, you have to move your coins to a Segwit address. All the user has to do, is switch to a segwit supporting wallet (or wait for your wallet to update to Segwit) and receive coins to a newly generated segwit address, which starts with a '3', instead of the '1' for an "old" Bitcoin address. If you then spend your Bitcoin (to any address), Segwit will be used and you will benefit from a cheaper overall transaction fee.
For a list of all segwit supporting Bitcoin wallets, see https://bitcoincore.org/en/segwit_adoption/. In the next few weeks we should expect all major Bitcoin wallets to begin supporting Segwit and we should see more and more transaction using the Segwit technology.
Some more details on Segwit transactions
With Segwit, a new unit for transaction size is introduced. From now on, we will no longer talk about transaction size in terms of bytes, but about transaction weigth in terms of weight units (WU). The content of a transaction is split between non-witness data (which has to be stored on the block like before) and witness data, which is moved to the extended block. Each byte of non-witness data counts as 4 WU, while each byte of witness data only counts as 1 WU. The maximum capacity of a block is currently 4 kWU, so if nobody would use Segwit, this would correspond to the old max block size of 1MB. But because a Segwit transaction has witness data, which only counts as 1WU/byte, we should see a decrease of transaction weight by about 34% thanks to Segwit.
For more information, see https://en.bitcoin.it/wiki/Block_weight
the current transaction fee is $5, if we use segwit it will be 34% cheaper, $5 x 66% = $3.3. so, we still have to pay $3.3 transaction fee even we use segwit. consider bitcoin adoption will rise in the near future, the fee will easily rise over $5 even for segwit transaction.
people may argue that the Lightning Network(LN) has already been implemented by then, then we can utilize LN to enjoy low fee transaction. but in the end of the day, we still have to use on-chain transaction to transfer bitcoin into the LN, and then transfer bitcoin back to the blockchain after finish using them, therefore we still can't avoid high fees no matter what.
segwit is good but it doesn't deal with the issue of 1mb limit that needs to be increased or speed up block time from 10min to let's say 1min.