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What is a bitcoin address?. A bitcoin address is a unique… | by Sunflower Corporation | Coinmonks | Sep 2022

A bitcoin address is a unique identifier that allows users to send and receive cryptocurrency. Are there a lot of addresses? Which one is better? Let’s figure it out together!

Each BTC address is unique and is generated by complex encryption mechanisms.In the bitcoin network, it functions similarly to a bank account.

There are several address formats in the bitcoin network:

  • Legacy (P2PKH)
  • Script (P2SH)
  • SegWit (P2WPKH)
  • Taproot (P2TR)

Each type of bitcoin address is distinguished by its technologies and user benefits, most notably the ability to pay lower transaction fees.

As of August 2022, the most popular bitcoin addresses standard is SegWit.

The Taproot or Bech32m formats were the last ones in the bitcoin protocol. They were implemented concurrently with the activation of the update in November 2021.

There are several types of addresses in the bitcoin network. They are easily distinguished by the prefix characters at the beginning of the address:

  1. Legacy (P2PKH): starts with the number 1.
    Example: 1N4Qbzg6LSXUXyXu2MDuGfzxwMA7do8AyL.
  2. Script (P2SH): starts with the number 3.
    Example: 3J98t1WpEZ73CNmQviecrnyiWrnqRhWNLy.
  3. SegWit (P2WPKH): starts with the “bc1q“combination.”
    Example: bc1qfg9t7fwn0atn4yf9spca5502vk8dyhq8a9aqd8.
  4. Taproot (P2TR): starts with the “bc1p“combination.”
    Example: bc1peu5hzzyj8cnqm05le6ag7uwry0ysmtf3v4uuxv3v8hqhvsatca8ss2vuwx.

Legacy address is the very first address standard in the bitcoin network, proposed by Satoshi Nakamoto. Otherwise, it is called P2P (Pay To Public Key Hash), because it requires a signature calculated from the private key and a public key from the recipient.

A Legacy address consists of three parts:

  • Prefix;
  • The public key generated as a result of applying the SHA256 and RIPEMD algorithms to the private key;
  • The checksum.

All wallets and applications on the bitcoin network support both incoming and outgoing transfers from such addresses. The most significant disadvantage of Legacy addresses is the high commissions. They also have a slower checksum double hashing speed and more weight in QR codes.

Script addresses first appeared in the Bitcoin improvement proposal BIP-0016 in January 2012thanks to the Bitcoin Foundation’s chief researcher Gavin Andresen.

They follow the same format as Legacy addresses, but they begin with the number 3. Such addresses assume that the recipient must have a script that matches the hash script when transferring funds. You can use this feature to lower the transfer fee, shift commission costs to the recipient, and create multi-signature addresses.

In the spring of 2016developers Pieter Wuille and Gregory Maxwell proposed a new type of address called Bech32 in the BIP-0173 update. It is also called Segregated Witness (SegWit) or P2WPKH (Pay to Witness Public Key Hash).

Such addresses employ the SegWit protocol, which allows you to reduce block size in the bitcoin network by removing the signature, resulting in lower transaction fees than when using Script or Legacy. The associated update went live at the end of August 2017.

As of 2022, SegWit is considered the industry standard and is supported by all popular bitcoin wallets. According to the website, about 85% of all outgoing transactions in mid-August 2022 were made from SegWit addresses.

For several years people have been waiting for the Bitcoin protocol update called Taproot. Its activation was completed in November 2021.

The upgrade included significant technical changes, most notably the implementation of the Schnorr signature scheme and the MAST concept. Taproot should improve the efficiency and scalability of the bitcoin blockchain. However, there is another effect of the update: the address of a new format known as Pay-to-Taproot (P2TR) or Bech32m.

The main advantage of Taproot addresses is that they have lower fees than other formats and allow for cheaper Lightning Network payments.

However, Taproot has a significant disadvantage: it currently supports only a limited number of wallets. Only 0.56% of all outgoing bitcoin network transfers were made from this type of address in mid-August 2022.

The decentralized bitcoin network, which is used by a large number of applications and users, is characterized by the gradual adoption of the new standard. A similar situation was observed following the implementation of SegWit.

Today, Legacy, Script, and SegWit are fully compatible with one another. Both incoming and outgoing transfers are permitted between them.

Taproot’s situation is a little different. Most non-custodial wallets support sending transactions to addresses like Bech32m, but they lack functions for creating such addresses. Furthermore, not all cryptocurrency exchanges permit funds to be sent to a Taproot address. The current situation with the implementation of Taproot in popular bitcoin wallets can be viewed on the Bitcoin Wiki website.

Transactions of P2TR addresses are supported by many Bitcoin blog browsers used, such as Blockchair or Blockstream.

If you have anything to add to the bitcoin address topic, welcome to our comments!
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