Segregated Witness BIP
This BIP defines a new structure called a “witness” that is committed to blocks separately from the transaction merkle tree. This structure contains data required to check transaction validity but not required to determine transaction effects. In particular, scripts and signatures are moved into this new structure.
The witness is committed in a tree that is nested into the block’s existing merkle root via the coinbase transaction for the purpose of making this BIP soft fork compatible. A future hard fork can place this tree in its own branch.
The entirety of the transaction’s effects are determined by output consumption (spends) and new output creation. Other transaction data, and signatures in particular, are only required to validate the blockchain state, not to determine it.
By removing this data from the transaction structure committed to the transaction merkle tree, several problems are fixed:
Nonintentional malleability becomes impossible. Since signature data is no longer part of the transaction hash, changes to how the transaction was authorized is no longer relevant to transaction identification. As a solution of transaction malleability, this is superior to the canonical signature approach (BIP62):
It prevents involuntary transaction malleability for any type of scripts, as long as all inputs are signed (with at least one CHECKSIG or CHECKMULTISIG operation)
In the case of an m-of-n CHECKMULTISIG script, a transaction is malleable only with agreement of m private key holders (as opposed to only 1 private key holder with BIP62)
It prevents involuntary transaction malleability due to unknown ECDSA signature malleability
It allows creation of unconfirmed transaction dependency chains without counterparty risk, an important feature for offchain protocols such as the Lightning Network
Transmission of signature data becomes optional. It is needed only if a peer is trying to validate a transaction instead of just checking its existence. This reduces the size of SPV proofs and potentially improves the privacy of SPV clients as they can download more transactions using the same bandwidth.
Some constraints could be bypassed with a soft fork by moving part of the transaction data to a structure unknown to current protocol, for example:
Size of witness could be ignored / discounted when calculating the block size, effectively increasing the block size to some extent
Hard coded constants, such as maximum data push size (520 bytes) or sigops limit could be reevaluated or removed
New script system could be introduced without any limitation from the existing script semantic
Additional data required for fraud proofs can be added to witness. Extra data can be committed that allows short proofs of block invalidity that SPV nodes can quickly verify.
Backlinks for the outputs spent by the transaction’s inputs can be provided. These backlinks consist of a block hash and an offset that thin clients can easily query and check to verify that the outputs exist.
Sum trees for transaction inputs and outputs can be committed making it possible to construct short proofs that no new coins are created in any noncoinbase transaction and that the miner does not add excessive fees to the coinbase transaction.