What is that about the different types of Bitcoin addresses?

Are you new to Bitcoin and wondering about the different types of Bitcoin addresses?

Bitcoin addresses are important because they contain information about who can access the Bitcoin that has been sent to them. In this post, we will take a closer look at the four different types of Bitcoin addresses, their unique features, and how they work.

Legacy Addresses (P2PKH)

Legacy addresses are the original Bitcoin addresses and start with the number 1. These addresses are simply the hash of the public key to your private key. Legacy addresses are the most expensive address type as they use the most amount of space inside a transaction. However, if you have an old wallet that is incompatible with newer address types, you may still need to use a legacy address.

Pay to Script Hash (P2SH)

Pay-to-Script-Hash addresses start with the number 3. These addresses are not the hash of the public key, but of a script that involves certain spending conditions, which stay hidden from the sender. P2SH addresses can even make use of SegWit and save transaction fees. Sending to a P2SH address is roughly 26% cheaper than using a wallet with legacy addresses.

Native SegWit (P2WPKH)

Native SegWit addresses start with bc1q. This type of address reduces the amount of information stored in the transaction even more by not keeping the signature and script within the transaction, but in the witness. Using this type, you can save an additional 16% over the P2SH addresses, adding up to over 38% savings over legacy addresses. This is currently the most used standard for addresses.

Taproot (P2TR)

Taproot addresses start with bc1p. Taproot addresses are not used yet, but the Bitcoin network will perform the taproot soft-fork in November 2021. This will enable a lot of new smart-contract capabilities for Bitcoin addresses and improve the privacy of spending such transactions.

To identify the type of a Bitcoin address, you can look at the first letters of it. If it starts with “1”, it’s a legacy address. If it starts with “3”, it’s a P2SH address. If it starts with “bc1q”, it’s a native SegWit and if the first 4 letters are “bc1p”, it’s a taproot address.

You can generate a Bitcoin address by clicking on “Receive” within your Bitcoin wallet. You can create as many different Bitcoin addresses as you want. For privacy reasons, it is advised to not re-use an address.

Most Bitcoin wallets default to bech32 (native SegWit) addresses, which saves the highest amount of transaction costs. If your wallet lets you choose which type you want to use, you should use native SegWit addresses.

Q&A:

1. What’s in a Bitcoin address? The first letters of a Bitcoin address hold clues about the type of address it is. Whether it’s a legacy address that starts with “1”, a P2SH address that begins with “3”, a native segwit address that starts with “bc1q”, or a taproot address that starts with “bc1p”, each type serves a unique purpose.
2. Where to find a Bitcoin address? If you need a Bitcoin address, look no further than your own wallet. By clicking on “Receive,” you can generate as many addresses as you need. However, for privacy’s sake, it’s best not to reuse the same address.
3. Is changing your Bitcoin address necessary? No, it’s not necessary to change your Bitcoin address unless you’re sending funds to a new address. In that case, you’ll have to create a new address in your wallet and conduct a regular transaction to the new address.
4. Which Bitcoin address should you use? If you have a choice, opt for a native segwit address. Most wallets default to bech32 addresses, which saves you money in transaction costs.
5. How do Bitcoin addresses enable transactions? Bitcoin addresses are key to enabling transactions. By proving that you own the private key to a given address, you’re able to initiate a transaction from it. Without that proof of ownership, no valid transaction can take place.
6. Are Bitcoin addresses case-sensitive? No, Bitcoin addresses aren’t case-sensitive.