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Bitcoin Wallet Address Types Explained

Last Updated: Apr, 4 2020
A Bitcoin address is a series of alphanumeric characters that define the receiver in a transaction. It can be used for payments as well as money transfers. It can be shared publicly and works somewhat like an email address. But rather than receiving or sending text or multimedia, the digital message carries value. It is also somewhat similar to a bank account number that allows you to send, receive and check your balance.

A Bitcoin address is a series of alphanumeric characters that define the sender and receiver in a transaction. It can be used for payments as well as money transfers. It can be shared publicly and works somewhat like an email address. But rather than receiving or sending text or multimedia, the digital message carries value. It is also somewhat similar to a bank account number that allows you to send, receive and check your balance.

How do you get a Bitcoin address?

There are several ways to obtain a Bitcoin address for free:

Enrolling as a customer of a cryptocurrency exchange.

Installing special software on your computer and generating the address yourself.

Creating a wallet using free online software. The wallet will have one or more addresses associated with it.

Every crypto-exchange will provide an easy way to generate an address that will constantly be associated with your account at the exchange. Exchanges allow you to convert Bitcoin into dollars, euro or other currencies and cryptocurrencies. Therefore they need to have a Bitcoin address that can send or receive funds on your behalf.

You would not use this type of address to send Bitcoin privately to a friend or business partner. Such an application would require an address that you can control in full. You also would not use an address provided by an exchange if you plan to keep some Bitcoins safe for the future. In such a case you would need an address controlled uniquely by you.

Where to get a free address online

A free and simple source for generating a Bitcoin address online is bitaddress.org. Here you will be asked to move your mouse randomly to generate the code which will produce the address.

The generation of a new Bitcoin address on bitaddres.org

At the end of the short procedure, you will have a complete address along with the two keys that go along with it.

The final Bitcoin address prepared for free using bitaddress.org.

Note that you have two components. The address itself, which appears on the upper left corner, can be shared publicly for receiving funds. The Private Key, shown in the upper right corner, is secret and will be used in the future to authorize money transfer to somebody else.

The combination of these two elements gives you the most elementary form of a Bitcoin wallet, which is in fact a digital “key-ring”. Bitcoin uses a special cryptographic technology for validating and signing transactions. It is called Public-Key cryptography and it has been in use since 1976 providing security for the vast majority of computer networks, including the Internet.

It uses two separate keys, a public key that can be freely distributed and a private key that is secret. I want can encrypt a message using your public key and only you will be able to decipher it using your private key. It is very difficult to figure out the private key starting from the corresponding public key. Therefore it is fairly safe to share the public key with anyone and still guarantee that nobody will be able to read messages that are uniquely addressed to you or impersonate you by authenticating documents with your private key

In building a Bitcoin address, developers took the inherent safety of this technology one step further. You first generate a public/private key pair, then you take the public key and further convert it to obtain the final public address. This final conversion is performed through a hash procedure which is irreversible. The hash is like a finger print of a bundle of digital information. it has a fixed length, independent of the size of the material processed. A very small change in the original content will produce a marked change in the hash. Therefore the hash is a faithful representation and substitute of the original public key. Yet it is quite difficult to figure out the public key starting from the address, but they are tightly connected. So you have two barriers: in order to steal your Bitcoins, an attacker should be able to first figure out your public key from your address and then figure out your private key from your public key.

Nobody has been able to do it so far. Expert Bitcoin users also use different addresses for each transaction, introducing an additional level of protection and privacy.

Three different address formats

Bitcoin has different address formats for three different uses. Sometimes you can switch freely from one type to another, sometimes only a particular format will be supported. The legacy address format is known as P2PKH (Pay-to-Pubkey Hash) and still works on the Bitcoin network to this day.

It starts with the number 1, has 26 alphanumeric characters and looks like the following example:

17SkEw2md5avVNyYgj6RiXuQKNwkXaxFyQ

which is, by the way, the historical address where Jeremy Sturdivant received, on May 22, 2010, the very first payment in bitcoins for sending two pizzas to Laszlo Hanyecz who paid 10,000 BTC for them. The address is still active today and you can see the relevant information by clicking on it. On the page that comes up, you will see that the associated wallet has the following name/address:

4c2ddb643df51f0

The summary page tells you that the first transaction was actually on May 22, 2010, and that the last one was on February 4, 2020. The current balance is 252,593 satoshis (few dollars as compared to the tens of millions of dollars that the 10,000 BTC are worth today).

The sending address used by Laszlo in the same transaction was:

1XPTgDRhN8RFnzniWCddobD9iKZatrvH4

Which was associated with the following wallet name/address:

0101e9c63ebda439

This particular address has much more activity, as you can see from the informative page.

The name P2PKH of this type of address simply means that you send your payment to the address which is obtained by calculating the hash of the public key of the recipient. Most cryptocurrency exchanges use this type of address for creating accounts. In order to spend the money you receive to a P2PKH address, you just need your private key which will produce a digital signature that will allow you to send funds to another Bitcoin address. Your signature will become part of the new transaction information.

Pay-to-Script type of address

The second type of Bitcoin address has 26 characters as well, but it always starts with the number 3 and it is named P2SH (Pay-to-script Hash). Here the transaction information incorporates a “script” which contains rules and that will influence future transactions. For example, you might require the signature of multiple people before releasing the money. The person receiving the Bitcoins will be able to spend them only according to the instructions contained in the script.

Here is an example of P2SH address:

3J98t1WpEZ73CNm2b5ecrnyiWrnqRhWNLy

The script which locks the next transaction is called PubKey Script or locking script. The recipient will have to generate a signature script, also known as unlocking script or scriptSig. If the two match, the recipient will be able to spend the Bitcoins he received or forward it to the next person who has to sign.

The most modern address type is Bech32 . Some exchanges don’t support it yet, but it is growing in popularity. It has 35 alphanumeric characters and it always starts with the letters bc1. Bech 32 aims at lowering the transaction cost and allow more people to use Bitcoin for general use.

Conclusion

Bitcoin Addresses are bet created and managed inside a wallet. You will use multiple addresses withing the same wallet. Here you can find a guide to choose the best wallet.

Roberto Mazzoni