Bitcoin Address - what is it?

Bitcoin address is an account number in the BTC cryptocurrency system. Despite the fundamental difference between the fiat financial system and cryptocurrency, they have standard features. For example, in the same way that each bank card user has their own account number, the name of the cryptocurrency account is also used. In other words, if it is the digital coin Bitcoin, then the account number represents the Bitcoin Address.

Features of creating a Bitcoin account

Typically, a Bitcoin account number, that is, a Bitcoin address, is a complex combination of characters that includes:

  • letters;
  • numbers.

In total, one address uses from 26 to 40 characters, except for the prefix, which determines the name of the cryptocurrency itself, which is used. With this combination, you can carry out transactions with different digital coins. You can find out your Bitcoin address directly in your crypto wallet. Address generation is performed using complex encryption algorithms.

Types of Bitcoin addresses

The cryptocurrency system is not only constantly developing but also being modernized. Therefore, today, there are already several types of Bitcoin addresses:

  • Legacy (P2PKH). This Bitcoin address format is the first standard that began to be used since the introduction of the cryptocurrency system. This is exactly the format proposed by Satoshi Nakamoto. To use it, the recipient's signature and a public key are required. When using such a Bitcoin address, users are forced to pay high fees and the speed of transactions. Therefore, this format is not very popular today because alternative, more convenient, and practical options exist.
  • Script (P2SH). This technology was introduced already in 2012. It was proposed by Gavin Andersen, who worked at the Bitcoin Foundation then. The structure is basically the same as Legacy addresses, but the prefix is indicated by the number 3. To conduct a transaction, the user must receive a script that must match the hash script. Due to this feature, the commission is reduced, and its payment can be transferred to the recipient.
  • SegWit (P2WPKH). This format was introduced in 2016 following a proposal made by Greg Maxwell and Peter Welle. All Bitcoin addresses of this type begin with the combination bc1q. The main advantages of this particular format are increased resistance to input errors and case insensitivity. The commission for making payments with such addresses is the lowest.
  • Taproot (P2TR). This type of Bitcoin address is also called Bech32m. It will be activated in 2021. The main advantages are network scaling and a progressive level of security. Transfers are carried out using a flexible scheme using several transaction confirmation keys. It is this format that has proven itself to be effective in smart contracts.

Today, according to the statistics obtained, 85% of all transactions are carried out using the third Bitcoin address format.

Transfers between addresses of different types - how possible is this?

Today, all formats, except the last one, require mutual interfacing. That is, incoming and outgoing transfers are technically compatible. There are limitations only with Taproot, including when working on some cryptocurrency exchanges where this format still needs to be supported.