Our vision at Bread is to bring bitcoin to every person who uses money, worldwide. One of the core challenges to making that vision a reality is scaling up the bitcoin network to handle billions of users. The existing bitcoin protocol is limited in how many users it can support at any one time, but bitcoin businesses, open source developers, and other bitcoin community members have been working hard over the past few years to develop solutions to address this problem. It is important that these improvements not sacrifice the properties that make bitcoin successful as a store-of-value and medium-of-exchange, which adds extra complexity.
Many exciting developments are now coming to fruition, including segregated witness, Schnorr signatures, the lightning network, and side-chains/drive-chains. Scaling solutions such as these are essential if we are going to bring bitcoin to everyone in the world, and to that end, Bread is committed to implementing the solutions we believe will best benefit our users.
The most immediate of these is segregated witness, or SegWit. Version 1 of SegWit was integrated into the bitcoin network late last year, and is a method for separating out the digital signature portion of a transaction (the witness). SegWit is also the basis for several other scaling solutions currently in various stages of development.
SegWit integration presents some unique challenges for Bread. Unlike custodial services or server-trusting bitcoin apps, Bread connects directly to the bitcoin peer-to-peer network, using simplified payment verification, or SPV. This means Bread users are not reliant on us or our services in order to access their funds. Even if our entire business shuts down tomorrow, users would still have full control over their bitcoin balances.
One aspect of the SPV protocol is that each time a new type of bitcoin address or signature scheme is introduced, a new chain of addresses must be monitored for transactions belonging to the user. This monitoring is resource intensive, particularly on mobile devices, and introduces long delays during app "syncing." To provide our users with the best experience possible, we have commited to aggressively pursuing an implementation of SegWit that is sufficiently mature as to not become obsolete in the foreseeable future. Once we support one chain, we will have to support it forever, and this form of technical debt does not serve the interests of our users.
The most recent developments in SegWit are the bech32 address scheme, and the planned switch to Schnorr signatures. SegWit version 1 reduces effective transaction sizes by about 40%, but an additional (estimated) 25% can be saved by implementing Schnorr, and the new bech32 address standard will save even more space by allowing "raw SegWit" without having to wrap the SegWit data inside a legacy bitcoin address scheme.
A white paper detailing the Schnorr signature scheme planned for implementation on the bitcoin network was just released in January, and a bitcoin improvement proposal (BIP) detailing the specifics of how this new signature scheme is going to be integrated is currently in the works and expected very soon. Bread has always been an early adopter of bitcoin protocol standards. We were the first SPV wallet to use BIP32 address chains, the first to run exclusively on malware hardened, hardware encrypted devices, and helped develop the BIP39 paper key backup standard. We are already prepared for SegWit, having completed support for SegWit transaction encoding, the new bech32 address format, and Schnorr signatures. All that remains is a final specification defined and adopted by the bitcoin development community.
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