Before SegWit (Segregated Witness), Bitcoin measured transaction size in raw bytes and fees were quoted in sat/byte. SegWit separated the transaction signature (witness data) from the main transaction data, and gave witness bytes a 75% discount. This means a SegWit input that occupies 41 raw bytes only counts as ~10.25 virtual bytes for fee purposes.
Taproot (P2TR), activated in November 2021, improves on SegWit further. Taproot inputs use Schnorr signatures which are slightly smaller than ECDSA signatures. More importantly, Taproot enables complex multi-signature and smart contract outputs to appear as simple single-key spends on-chain, dramatically reducing fees for advanced use cases like Lightning Network channel opens and DeFi-style transactions.
Under SegWit, each byte of non-witness data has a weight of 4, while each byte of witness data has a weight of 1. The total weight is divided by 4 to get virtual bytes (vB). This is why fees are now expressed in sat/vB rather than sat/byte. A legacy P2PKH input weighs 148 bytes × 4 = 592 weight units (148 vB). A SegWit P2WPKH input weighs about 272 weight units (68 vB) — a 54% reduction in effective fee cost.
