Guide on creating a segwit wallet in electrum 3.0.5 (segwit tx’s cost less!)

Posted on 21 Feb 2018 by Vendor-Bubblehash at /r/DarkNetMarkets

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Guide on creating a segwit wallet in electrum 3.0.5 (segwit tx’s cost less!)

by Vendor-Bubblehash

 

Segwit was a bitcoin protocal upgrade. Without going into to many details, segwit makes the transactions cost less
(lower miner fee) than older legacy transactions because of the way segwit arranges how the data is packed into a
block. To be able to benifit from the upgrade (and save up to 30-40% on fees) you need to install wallet that creates
segwit addresses and then fund a segwit address. Then you can start sending segwit transactions.
*Disclaimer** i may have some terminology wrong. Please let me know if thats the case and I will edit the post
What is a segwit transaction?
spending from a segwit address to another segwit address is a segwit transaction spending from a segwit address to a
legacy address is a segwit transaction
What is not a segwit transaction?
spending from a legacy adress to a segwit address
The newest version of Electrum (3.0.5) can create 2 types of segwit wallets. The default segwit wallet it creates is the
one that uses bech32. However there is a limitation to bech32 – it can’t recieve funds from the old legacy addresses
(old wallets don’t recognize the format, so funds contained in legacy address can’t be sent to bech32).
Let me explain a few of the different address formats. There are two types of segwit addresses: P2SH-P2WPKH
addresses – they start with a 3 (3address……) and CAN recieve funds from legacy addresses. The other type of
segwit addresses is called bech32. Bech32 addresses start with “bc1” (so bc1address…..). Most legacy addresses start
with a 1 (1address…..) and are P2PKH addresses. It’s the bech32 addresses that are NOT recognized by legacy
wallets. So to be able to recieve funds in a segwit wallet from legacy wallets you need to create a wallet that
generates P2SH-P2WPKH addresses.
Since legacy wallets don’t recoginze the bech32 format the best segwit wallet to use would be those that use P2SHP2WPKH
addresses. The following guide explains how to get an electrum wallet that uses P2SH-P2WPKH addresses.
You 1st have to create a new wallet. That wallet will be a segwit wallet that uses bech32. To get P2SH-P2WPKH
addresses, you need to import from seed and make a modification. I do not know of a way to directly create a P2SHP2WPKH
wallet by just creating a new wallet.
1st step: create a new segwit wallet that uses bech32 Make sure you have upgraded to electrum 3.0.5. Open electrum
(when you upgrade you will need to use the terminal to run the program because the electrum icon listed in the
application menu will load the older version. for upgrading to the new version of electrum see my previous post).
go to file, select
“New/Restore”

Type a file name and select
“next”
Select
“standard wallet” and select “next”
Select
“Create a new seed” and select “next”
Select “segwit” and select “next”
Your new seed has been generated. Now write it down somewhere secure (don’t email it to yourself or keep an
unencrypted digital copy) and select
“next”
Now confirm your seed by entering it in and select
“next”
choose a password (save in in your keypass) and select
“next”
It will now generate a wallet with bech32 addresses. Since these can’t recieve from legacy addresses you will want to
create a P2SH-P2WPKH wallet.
You will use the seed from your newly created bech32 wallet to do this
Open electrum and Select
“file”
then
“new”
then select
“next: (name it something like the “segwit”)
then select
“standard wallet”
then select
“I already have a seed” .
Enter the seed, but then select
“options”
Select
“Bip 39”
then for derivation path put
m/49’/0’/0′
Then you’ll have segwit addresses that start with a “3” these addresses can recieve BTC from legacy addresses or
from Bech32 (no one is really using bech32 yet, but they are the cheapest way to send BTC)
A segwit transaction is:
segwit address to segwit address
or segwit to legacy
However legacy to segwit IS NOT a segwit tx and you will not benifit from the savings.
Segwit txs are smaller so you’ll pay less fees AND you won’t clog up the memepool.
You can also use this guide to use a seed from a legacy wallet, however the funds in legacy addresses can’t be spent
from the P2SH-P2WPKH wallet (they won’t show up when you load the segwit wallet, however the funds aren’t lost –
you can still open the old wallet and spend them). Electrum allows you to have multiple wallets from the same seed
open. So you could use the seed from your legacy wallet to create a P2SH-P2WPKH segwit wallet and have it open
and spend/recieve from both.

Day 9: I will post this guide regularly until available solutions like SegWit & order batching are mass adopted, the mempool is empty once again, and TX fees are low. Do you want low TX fees? This is how you get low TX fees from Bitcoin