Segregated Witness, often abbreviated to SegWit, is an update to the Bitcoin protocol designed to address the network’s scalability and security issues.
SegWit is an update that segregates the transaction data and the “witness” data, which includes the digital signatures.
The introduction of SegWit altered the transaction format to include a new field called the "witness" field. This witness field contains the digital signatures, public keys, and other elements. By segregating this data from the rest of the transaction and not counting the witness data when determining the block size, SegWit essentially frees up more space in the block.
SegWit was developed in 2015 by Bitcoin developer Pieter Wuille, in collaboration with a few other Bitcoin Core contributors. In August 2017, the SegWit upgrade was implemented as a soft fork on the Bitcoin network.
Without SegWit, the signature data can take up to 65% of a block. With SegWit, the signature data is moved away from the transaction's input. This leads to the block size to effectively increase from 1 MB to about 4 MB.
SegWit has the ability to increase transaction speed, since there can be more transactions included in a block. This leads to more transactions being processed and a higher TPS (transaction per second).
SegWit has been a controversial topic in the Bitcoin community, and its implementation was one of the key crossroads that led to the creation of Bitcoin Cash, a Bitcoin fork that has a larger block size without implementing SegWit.
Some view SegWit as an overly complex update that exposes the network to potential risks or vulnerabilities. Critics point to potential issues such as the possibility of certain transactions becoming "anyone-can-spend" transactions.