diff --git a/src/blockencodings.cpp b/src/blockencodings.cpp
index df237f8f26..93d3fa372b 100644
--- a/src/blockencodings.cpp
+++ b/src/blockencodings.cpp
@@ -17,7 +17,7 @@
 
 #define MIN_TRANSACTION_BASE_SIZE (::GetSerializeSize(CTransaction(), SER_NETWORK, PROTOCOL_VERSION | SERIALIZE_TRANSACTION_NO_WITNESS))
 
-CBlockHeaderAndShortTxIDs::CBlockHeaderAndShortTxIDs(const CBlock& block) :
+CBlockHeaderAndShortTxIDs::CBlockHeaderAndShortTxIDs(const CBlock& block, bool fUseWTXID) :
         nonce(GetRand(std::numeric_limits<uint64_t>::max())),
         shorttxids(block.vtx.size() - 1), prefilledtxn(1), header(block) {
     FillShortTxIDSelector();
@@ -25,7 +25,7 @@ CBlockHeaderAndShortTxIDs::CBlockHeaderAndShortTxIDs(const CBlock& block) :
     prefilledtxn[0] = {0, block.vtx[0]};
     for (size_t i = 1; i < block.vtx.size(); i++) {
         const CTransaction& tx = block.vtx[i];
-        shorttxids[i - 1] = GetShortID(tx.GetHash());
+        shorttxids[i - 1] = GetShortID(fUseWTXID ? tx.GetWitnessHash() : tx.GetHash());
     }
 }
 
diff --git a/src/blockencodings.h b/src/blockencodings.h
index 349fcbd50f..99b1cb140d 100644
--- a/src/blockencodings.h
+++ b/src/blockencodings.h
@@ -146,7 +146,7 @@ public:
     // Dummy for deserialization
     CBlockHeaderAndShortTxIDs() {}
 
-    CBlockHeaderAndShortTxIDs(const CBlock& block);
+    CBlockHeaderAndShortTxIDs(const CBlock& block, bool fUseWTXID);
 
     uint64_t GetShortID(const uint256& txhash) const;
 
diff --git a/src/main.cpp b/src/main.cpp
index 40c31b6ca6..c92a38be98 100644
--- a/src/main.cpp
+++ b/src/main.cpp
@@ -289,10 +289,21 @@ struct CNodeState {
     bool fPreferHeaders;
     //! Whether this peer wants invs or cmpctblocks (when possible) for block announcements.
     bool fPreferHeaderAndIDs;
-    //! Whether this peer will send us cmpctblocks if we request them
+    /**
+      * Whether this peer will send us cmpctblocks if we request them.
+      * This is not used to gate request logic, as we really only care about fSupportsDesiredCmpctVersion,
+      * but is used as a flag to "lock in" the version of compact blocks (fWantsCmpctWitness) we send.
+      */
     bool fProvidesHeaderAndIDs;
     //! Whether this peer can give us witnesses
     bool fHaveWitness;
+    //! Whether this peer wants witnesses in cmpctblocks/blocktxns
+    bool fWantsCmpctWitness;
+    /**
+     * If we've announced NODE_WITNESS to this peer: whether the peer sends witnesses in cmpctblocks/blocktxns,
+     * otherwise: whether this peer sends non-witnesses in cmpctblocks/blocktxns.
+     */
+    bool fSupportsDesiredCmpctVersion;
 
     CNodeState() {
         fCurrentlyConnected = false;
@@ -313,6 +324,8 @@ struct CNodeState {
         fPreferHeaderAndIDs = false;
         fProvidesHeaderAndIDs = false;
         fHaveWitness = false;
+        fWantsCmpctWitness = false;
+        fSupportsDesiredCmpctVersion = false;
     }
 };
 
@@ -467,8 +480,8 @@ void UpdateBlockAvailability(NodeId nodeid, const uint256 &hash) {
 }
 
 void MaybeSetPeerAsAnnouncingHeaderAndIDs(const CNodeState* nodestate, CNode* pfrom, CConnman& connman) {
-    if (pfrom->GetLocalServices() & NODE_WITNESS) {
-        // Don't ever request compact blocks when segwit is enabled.
+    if (!nodestate->fSupportsDesiredCmpctVersion) {
+        // Never ask from peers who can't provide witnesses.
         return;
     }
     if (nodestate->fProvidesHeaderAndIDs) {
@@ -476,7 +489,7 @@ void MaybeSetPeerAsAnnouncingHeaderAndIDs(const CNodeState* nodestate, CNode* pf
             if (nodeid == pfrom->GetId())
                 return;
         bool fAnnounceUsingCMPCTBLOCK = false;
-        uint64_t nCMPCTBLOCKVersion = 1;
+        uint64_t nCMPCTBLOCKVersion = (pfrom->GetLocalServices() & NODE_WITNESS) ? 2 : 1;
         if (lNodesAnnouncingHeaderAndIDs.size() >= 3) {
             // As per BIP152, we only get 3 of our peers to announce
             // blocks using compact encodings.
@@ -4856,11 +4869,12 @@ void static ProcessGetData(CNode* pfrom, const Consensus::Params& consensusParam
                         // they wont have a useful mempool to match against a compact block,
                         // and we don't feel like constructing the object for them, so
                         // instead we respond with the full, non-compact block.
+                        bool fPeerWantsWitness = State(pfrom->GetId())->fWantsCmpctWitness;
                         if (mi->second->nHeight >= chainActive.Height() - 10) {
-                            CBlockHeaderAndShortTxIDs cmpctblock(block);
-                            pfrom->PushMessageWithFlag(SERIALIZE_TRANSACTION_NO_WITNESS, NetMsgType::CMPCTBLOCK, cmpctblock);
+                            CBlockHeaderAndShortTxIDs cmpctblock(block, fPeerWantsWitness);
+                            pfrom->PushMessageWithFlag(fPeerWantsWitness ? 0 : SERIALIZE_TRANSACTION_NO_WITNESS, NetMsgType::CMPCTBLOCK, cmpctblock);
                         } else
-                            pfrom->PushMessageWithFlag(SERIALIZE_TRANSACTION_NO_WITNESS, NetMsgType::BLOCK, block);
+                            pfrom->PushMessageWithFlag(fPeerWantsWitness ? 0 : SERIALIZE_TRANSACTION_NO_WITNESS, NetMsgType::BLOCK, block);
                     }
 
                     // Trigger the peer node to send a getblocks request for the next batch of inventory
@@ -5128,13 +5142,16 @@ bool static ProcessMessage(CNode* pfrom, string strCommand, CDataStream& vRecv,
             pfrom->PushMessage(NetMsgType::SENDHEADERS);
         }
         if (pfrom->nVersion >= SHORT_IDS_BLOCKS_VERSION) {
-            // Tell our peer we are willing to provide version-1 cmpctblocks
+            // Tell our peer we are willing to provide version 1 or 2 cmpctblocks
             // However, we do not request new block announcements using
             // cmpctblock messages.
             // We send this to non-NODE NETWORK peers as well, because
             // they may wish to request compact blocks from us
             bool fAnnounceUsingCMPCTBLOCK = false;
-            uint64_t nCMPCTBLOCKVersion = 1;
+            uint64_t nCMPCTBLOCKVersion = 2;
+            if (pfrom->GetLocalServices() & NODE_WITNESS)
+                pfrom->PushMessage(NetMsgType::SENDCMPCT, fAnnounceUsingCMPCTBLOCK, nCMPCTBLOCKVersion);
+            nCMPCTBLOCKVersion = 1;
             pfrom->PushMessage(NetMsgType::SENDCMPCT, fAnnounceUsingCMPCTBLOCK, nCMPCTBLOCKVersion);
         }
     }
@@ -5195,12 +5212,23 @@ bool static ProcessMessage(CNode* pfrom, string strCommand, CDataStream& vRecv,
     else if (strCommand == NetMsgType::SENDCMPCT)
     {
         bool fAnnounceUsingCMPCTBLOCK = false;
-        uint64_t nCMPCTBLOCKVersion = 1;
+        uint64_t nCMPCTBLOCKVersion = 0;
         vRecv >> fAnnounceUsingCMPCTBLOCK >> nCMPCTBLOCKVersion;
-        if (nCMPCTBLOCKVersion == 1) {
+        if (nCMPCTBLOCKVersion == 1 || ((pfrom->GetLocalServices() & NODE_WITNESS) && nCMPCTBLOCKVersion == 2)) {
             LOCK(cs_main);
-            State(pfrom->GetId())->fProvidesHeaderAndIDs = true;
-            State(pfrom->GetId())->fPreferHeaderAndIDs = fAnnounceUsingCMPCTBLOCK;
+            // fProvidesHeaderAndIDs is used to "lock in" version of compact blocks we send (fWantsCmpctWitness)
+            if (!State(pfrom->GetId())->fProvidesHeaderAndIDs) {
+                State(pfrom->GetId())->fProvidesHeaderAndIDs = true;
+                State(pfrom->GetId())->fWantsCmpctWitness = nCMPCTBLOCKVersion == 2;
+            }
+            if (State(pfrom->GetId())->fWantsCmpctWitness == (nCMPCTBLOCKVersion == 2)) // ignore later version announces
+                State(pfrom->GetId())->fPreferHeaderAndIDs = fAnnounceUsingCMPCTBLOCK;
+            if (!State(pfrom->GetId())->fSupportsDesiredCmpctVersion) {
+                if (pfrom->GetLocalServices() & NODE_WITNESS)
+                    State(pfrom->GetId())->fSupportsDesiredCmpctVersion = (nCMPCTBLOCKVersion == 2);
+                else
+                    State(pfrom->GetId())->fSupportsDesiredCmpctVersion = (nCMPCTBLOCKVersion == 1);
+            }
         }
     }
 
@@ -5258,7 +5286,7 @@ bool static ProcessMessage(CNode* pfrom, string strCommand, CDataStream& vRecv,
                         nodestate->nBlocksInFlight < MAX_BLOCKS_IN_TRANSIT_PER_PEER &&
                         (!IsWitnessEnabled(chainActive.Tip(), chainparams.GetConsensus()) || State(pfrom->GetId())->fHaveWitness)) {
                         inv.type |= nFetchFlags;
-                        if (nodestate->fProvidesHeaderAndIDs && !(pfrom->GetLocalServices() & NODE_WITNESS))
+                        if (nodestate->fSupportsDesiredCmpctVersion)
                             vToFetch.push_back(CInv(MSG_CMPCT_BLOCK, inv.hash));
                         else
                             vToFetch.push_back(inv);
@@ -5386,7 +5414,7 @@ bool static ProcessMessage(CNode* pfrom, string strCommand, CDataStream& vRecv,
             }
             resp.txn[i] = block.vtx[req.indexes[i]];
         }
-        pfrom->PushMessageWithFlag(SERIALIZE_TRANSACTION_NO_WITNESS, NetMsgType::BLOCKTXN, resp);
+        pfrom->PushMessageWithFlag(State(pfrom->GetId())->fWantsCmpctWitness ? 0 : SERIALIZE_TRANSACTION_NO_WITNESS, NetMsgType::BLOCKTXN, resp);
     }
 
 
@@ -5650,7 +5678,7 @@ bool static ProcessMessage(CNode* pfrom, string strCommand, CDataStream& vRecv,
                 // We requested this block for some reason, but our mempool will probably be useless
                 // so we just grab the block via normal getdata
                 std::vector<CInv> vInv(1);
-                vInv[0] = CInv(MSG_BLOCK, cmpctblock.header.GetHash());
+                vInv[0] = CInv(MSG_BLOCK | GetFetchFlags(pfrom, pindex->pprev, chainparams.GetConsensus()), cmpctblock.header.GetHash());
                 pfrom->PushMessage(NetMsgType::GETDATA, vInv);
             }
             return true;
@@ -5662,6 +5690,12 @@ bool static ProcessMessage(CNode* pfrom, string strCommand, CDataStream& vRecv,
 
         CNodeState *nodestate = State(pfrom->GetId());
 
+        if (IsWitnessEnabled(pindex->pprev, chainparams.GetConsensus()) && !nodestate->fSupportsDesiredCmpctVersion) {
+            // Don't bother trying to process compact blocks from v1 peers
+            // after segwit activates.
+            return true;
+        }
+
         // We want to be a bit conservative just to be extra careful about DoS
         // possibilities in compact block processing...
         if (pindex->nHeight <= chainActive.Height() + 2) {
@@ -5688,7 +5722,7 @@ bool static ProcessMessage(CNode* pfrom, string strCommand, CDataStream& vRecv,
                 } else if (status == READ_STATUS_FAILED) {
                     // Duplicate txindexes, the block is now in-flight, so just request it
                     std::vector<CInv> vInv(1);
-                    vInv[0] = CInv(MSG_BLOCK, cmpctblock.header.GetHash());
+                    vInv[0] = CInv(MSG_BLOCK | GetFetchFlags(pfrom, pindex->pprev, chainparams.GetConsensus()), cmpctblock.header.GetHash());
                     pfrom->PushMessage(NetMsgType::GETDATA, vInv);
                     return true;
                 }
@@ -5715,7 +5749,7 @@ bool static ProcessMessage(CNode* pfrom, string strCommand, CDataStream& vRecv,
                 // We requested this block, but its far into the future, so our
                 // mempool will probably be useless - request the block normally
                 std::vector<CInv> vInv(1);
-                vInv[0] = CInv(MSG_BLOCK, cmpctblock.header.GetHash());
+                vInv[0] = CInv(MSG_BLOCK | GetFetchFlags(pfrom, pindex->pprev, chainparams.GetConsensus()), cmpctblock.header.GetHash());
                 pfrom->PushMessage(NetMsgType::GETDATA, vInv);
                 return true;
             } else {
@@ -5757,7 +5791,7 @@ bool static ProcessMessage(CNode* pfrom, string strCommand, CDataStream& vRecv,
         } else if (status == READ_STATUS_FAILED) {
             // Might have collided, fall back to getdata now :(
             std::vector<CInv> invs;
-            invs.push_back(CInv(MSG_BLOCK, resp.blockhash));
+            invs.push_back(CInv(MSG_BLOCK | GetFetchFlags(pfrom, chainActive.Tip(), chainparams.GetConsensus()), resp.blockhash));
             pfrom->PushMessage(NetMsgType::GETDATA, invs);
         } else {
             CValidationState state;
@@ -5906,7 +5940,7 @@ bool static ProcessMessage(CNode* pfrom, string strCommand, CDataStream& vRecv,
                             pindexLast->GetBlockHash().ToString(), pindexLast->nHeight);
                 }
                 if (vGetData.size() > 0) {
-                    if (nodestate->fProvidesHeaderAndIDs && vGetData.size() == 1 && mapBlocksInFlight.size() == 1 && pindexLast->pprev->IsValid(BLOCK_VALID_CHAIN) && !(pfrom->GetLocalServices() & NODE_WITNESS)) {
+                    if (nodestate->fSupportsDesiredCmpctVersion && vGetData.size() == 1 && mapBlocksInFlight.size() == 1 && pindexLast->pprev->IsValid(BLOCK_VALID_CHAIN)) {
                         // We seem to be rather well-synced, so it appears pfrom was the first to provide us
                         // with this block! Let's get them to announce using compact blocks in the future.
                         MaybeSetPeerAsAnnouncingHeaderAndIDs(nodestate, pfrom, connman);
@@ -6536,8 +6570,8 @@ bool SendMessages(CNode* pto, CConnman& connman)
                     //TODO: Shouldn't need to reload block from disk, but requires refactor
                     CBlock block;
                     assert(ReadBlockFromDisk(block, pBestIndex, consensusParams));
-                    CBlockHeaderAndShortTxIDs cmpctblock(block);
-                    pto->PushMessageWithFlag(SERIALIZE_TRANSACTION_NO_WITNESS, NetMsgType::CMPCTBLOCK, cmpctblock);
+                    CBlockHeaderAndShortTxIDs cmpctblock(block, state.fWantsCmpctWitness);
+                    pto->PushMessageWithFlag(state.fWantsCmpctWitness ? 0 : SERIALIZE_TRANSACTION_NO_WITNESS, NetMsgType::CMPCTBLOCK, cmpctblock);
                     state.pindexBestHeaderSent = pBestIndex;
                 } else if (state.fPreferHeaders) {
                     if (vHeaders.size() > 1) {
diff --git a/src/test/blockencodings_tests.cpp b/src/test/blockencodings_tests.cpp
index d2392cfb22..7530b013bd 100644
--- a/src/test/blockencodings_tests.cpp
+++ b/src/test/blockencodings_tests.cpp
@@ -64,7 +64,7 @@ BOOST_AUTO_TEST_CASE(SimpleRoundTripTest)
 
     // Do a simple ShortTxIDs RT
     {
-        CBlockHeaderAndShortTxIDs shortIDs(block);
+        CBlockHeaderAndShortTxIDs shortIDs(block, true);
 
         CDataStream stream(SER_NETWORK, PROTOCOL_VERSION);
         stream << shortIDs;
@@ -116,7 +116,7 @@ public:
         stream >> *this;
     }
     TestHeaderAndShortIDs(const CBlock& block) :
-        TestHeaderAndShortIDs(CBlockHeaderAndShortTxIDs(block)) {}
+        TestHeaderAndShortIDs(CBlockHeaderAndShortTxIDs(block, true)) {}
 
     uint64_t GetShortID(const uint256& txhash) const {
         CDataStream stream(SER_NETWORK, PROTOCOL_VERSION);
@@ -267,7 +267,7 @@ BOOST_AUTO_TEST_CASE(EmptyBlockRoundTripTest)
 
     // Test simple header round-trip with only coinbase
     {
-        CBlockHeaderAndShortTxIDs shortIDs(block);
+        CBlockHeaderAndShortTxIDs shortIDs(block, false);
 
         CDataStream stream(SER_NETWORK, PROTOCOL_VERSION);
         stream << shortIDs;
diff --git a/src/txmempool.cpp b/src/txmempool.cpp
index 3586123d3e..15fa6fbca3 100644
--- a/src/txmempool.cpp
+++ b/src/txmempool.cpp
@@ -444,7 +444,7 @@ bool CTxMemPool::addUnchecked(const uint256& hash, const CTxMemPoolEntry &entry,
     totalTxSize += entry.GetTxSize();
     minerPolicyEstimator->processTransaction(entry, fCurrentEstimate);
 
-    vTxHashes.emplace_back(hash, newit);
+    vTxHashes.emplace_back(tx.GetWitnessHash(), newit);
     newit->vTxHashesIdx = vTxHashes.size() - 1;
 
     return true;
diff --git a/src/txmempool.h b/src/txmempool.h
index 6f67dd91d6..941644b2b2 100644
--- a/src/txmempool.h
+++ b/src/txmempool.h
@@ -465,7 +465,7 @@ public:
     indexed_transaction_set mapTx;
 
     typedef indexed_transaction_set::nth_index<0>::type::iterator txiter;
-    std::vector<std::pair<uint256, txiter> > vTxHashes; //!< All tx hashes/entries in mapTx, in random order
+    std::vector<std::pair<uint256, txiter> > vTxHashes; //!< All tx witness hashes/entries in mapTx, in random order
 
     struct CompareIteratorByHash {
         bool operator()(const txiter &a, const txiter &b) const {