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Home Tech Explained

Bitcoin Address Types Explained

Muchiri by Muchiri
December 5, 2022
in Tech Explained
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A Bitcoin address, like a traditional bank account number, can be used to send and receive bitcoins. You’re already using a Bitcoin address if you happen to be using the official blockchain wallet!

However, not all Bitcoin addresses are the same, so knowing how to use them effectively is important if you send and receive bitcoins regularly.

What Is A Bitcoin Address?

A Bitcoin wallet address is a unique identifier that allows you to send and receive bitcoins, similar to what we have with bank account numbers.

It is a virtual address that indicates the destination or source of a bitcoin transaction, informing people where to send bitcoins and from where they have received a bitcoin payment.

The Bitcoin address system is comparable to the email system through which you send and receive emails. In this case, the emails are your bitcoins, the email address is your Bitcoin address, and your email box is your Bitcoin wallet.

Bitcoin addresses are usually linked to your Bitcoin wallet, which helps you manage your bitcoin.

A Bitcoin wallet is software that allows you to receive, send, and store bitcoins securely. You’ll need a Bitcoin wallet to generate a bitcoin address.

Structure Of Bitcoin Addresses

Structurally, Bitcoin addresses are typically between 26 and 35 characters and are usually alphanumeric. They have private keys, which you need to carry out transactions between addresses.

These addresses have a standard format, a pay-to-public key hash (P2PKH).

Before the use of Bitcoin addresses, we had an IP address-based system in place. This system was however unsafe and created avenues for cybercriminals to carry out man-in-the-middle attacks and this led to it’s discontinuation.

The new system, Bitcoin addresses, has proven to be a more secure way for people to send bitcoins.

What Are the Different Types of Bitcoin Addresses?

There are several types of Bitcoin addresses. Each is unique in the way it works and can be uniquely identified.

Note: The word hash refers to a function that meets the encrypted demands needed to solve for a blockchain computation.

1. Segwit or Bech32 Address

Segwit addresses are also known as Bech32 addresses or bc1 addresses because they start with bc1.

This type of address limits the amount of information a transaction stores. As a result, segwit addresses can save you about 16% over the P2SH addresses, adding up to over 38% savings over legacy addresses. 

Because of this cost savings, it is the most commonly used address for transactions.

  • Here’s an example of a Bech32 address: bc1q42lja79elem0anu8q8s3h2n687re9jax556pcc

2. Legacy or P2PKH Address

Legacy addresses, or pay-to-public-key-hash (P2PKH) addresses, start with the number 1 and lock your bitcoins to your public key. The address points people to pay into your Bitcoin address.

Originally, when Bitcoin created the crypto scene, the legacy address was the only type available. Currently, it is the most expensive because it consumes the most space within transactions.

  • Here’s an example of a P2PKH address: 15e15hWo6CShMgbAfo8c2Ykj4C6BLq6Not

3. Compatibility or Pay to Script Hash Address

Compatibility addresses, also known as pay-to-script-hash (P2SH) addresses, start with the number 3. The hash of a compatibility address is specified within the transaction; it is not derived from the public key but from a script that comprises specific conditions for spending.

These conditions are kept from the sender. They may range from simple conditions (the user of public address A can spend this bitcoin) to more complex ones (the user of public address B can only spend this bitcoin after a certain amount of time has elapsed and if he reveals a certain secret).

As a result, this Bitcoin address is about 26% cheaper than the legacy address alternative.

  • Here’s an example of a P2SH address: 35PBEaofpUeH8VnnNSorM1QZsadrZoQp4N

4. Taproot or BC1P Address

This type of address starts with bc1p. Taproot or BC1P addresses help to provide spending privacy during transactions. Their transactions are smaller than legacy addresses but a bit bigger than native Bech32 addresses.

  • An example of a BC1P address is as follows: bc1pmzfrwwndsqmk5yh69yjr5lfgfg4ev8c0tsc06e

Also Read: M-Pesa Go Account For Minors Officially Launched By Safaricom


Which Bitcoin Address Should You Use?

Bitcoin Address

If you want to send bitcoins and know how to save money on transaction fees, you should use a segwit address. This is because they have the lowest transaction costs; therefore, you’ll save more with this Bitcoin address type.

However, Pay to Script Hash addresses offer great flexibility. You can use them to transfer bitcoins to new addresses because you can create scripts without knowing the type of script the receiving address employs.

P2SH addresses are a good option for casual users who generate their addresses.

A legacy or P2PKH address is the traditional address, and even though it pioneered the bitcoin address system, its high transaction fees have made it less attractive to users.

If privacy during transactions is a priority for you, you should use a taproot or BC1P address.

How Do You Identify A Bitcoin Address?

You can easily identify the type of address by looking 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.

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