Bitcoin Address Explained

At first, a Bitcoin address may appear quite similar to a bank account number. Like an account number, it also works as a unique identifier that denotes a virtual location where you can send BTC. But, there are some fundamental differences between how a Bitcoin address works and a bank account works. For example, Bitcoin addresses are not permanent. A bitcoin address is generated as a token for one-time use in a single transaction. While a Bitcoin wallet address can act as a storage location for funds, a Bitcoin payment address is not capable of holding a balance. 

Before delving deeper into the characteristics and features of a Bitcoin address that makes it unique from other fund-transfer destinations. Let’s have a look at how to get a new bitcoin address. 

How to get a Bitcoin address?

how to get a new bitcoin address

To get a new Bitcoin address, all one needs to do is download a Bitcoin wallet. The thing to remember here is that there are four basic types of Bitcoin wallets – mobile wallets, web wallets, desktop wallets, and hardware wallets. A bitcoin wallet, irrespective of the device it is downloaded to, is a type of software that permits a user to send, store and receive Bitcoin funds in the Bitcoin network. To make a payment or transfer, you need to create an invoice. If you are on the receiving end of the payment, you would receive a payment request for Bitcoins. Each time you create an invoice or receive a payment request for Bitcoins, your wallet will create a new bitcoin address.

If a user wants to generate his or her bitcoin address, there are open source bitcoin address generators available that can help. While the private key remains exclusive to the user himself/herself, one can generate bitcoin addresses using what is known as public-key cryptography. Based on this principle of public-key cryptography, open-source libraries that are based on algorithmic hash functions can create Bitcoin addresses for the users.

How to check Bitcoin address?

In case you need to search Bitcoin addresses, you can leverage the block explorers available. Block explorer services provide an easy and intuitive way to search a cryptocurrency’s blockchain, bitcoin in this case, for a particular bitcoin address. The block explorer service started as an option for any user to study the bitcoin transactions. It provided a wealth of information and insights through charts and statistics depicting the activity on the blockchain. 

On block explorers, users can search bitcoin addresses by leveraging the search bar with identifier parameters such as transaction hash, block number, and more.

Bitcoin Address Example

Rather than looking into one or two particular examples of a Bitcoin address, we would look into how a Bitcoin address is formed. A bitcoin address consists of an asymmetric key pair. The address, which is a combination of 26 to 35 alphanumeric characters, is only the public half of that pair. To generate the complete pair, what the wallet does is that it first generates a private key using an asymmetric signature algorithm. Then the wallet, or the software, uses that private key to generate the public key. To initiate a transfer or payment, the user signs in with the private key and makes the verification or the authorization through the public key.

Types of Addresses 

To send the cryptocurrency to addresses, it is useful to know that there are multiple types of bitcoin address formats. In the following segments, we will have a quick look at each of these types and how they can be identified. 

#1. P2PKH or Legacy Address Format

It is called the legacy format because it has been continuing as the original address format of Bitcoin since its inception. If the address starts with a 1, you can be pretty sure that you are dealing with a legacy address. Legacy address transactions are larger, and therefore the fee of payment, when sent from the legacy address, is generally higher.

#2. P2SH Format 

The quick way to identify a P2SH type of bitcoin address is to see whether it starts with the digit 3. Generally, multi-signature wallets follow this format. This address type is a widely supported one and is well compatible with both P2PKH and bech32 addresses.

#3. Bech32 Format 

You can easily recognize Bech32 addresses as each one of them starts with the identifier bc1. The good thing about the bech32 address is that it is compatible with almost all software and hardware wallets. However, most of the exchanges do not support this address format. Although the prevalence of Bech32 format address-type wallets is gaining momentum, even less than 1 percent of BTC are presently stored in these addresses.

#4. Bitcoin Cash Address Formats 

The addresses for Bitcoin Cash either follow the legacy format, which can be identified by the digit 1 in the beginning, or the typical Cash Address format. The Cash address format is derived from the bech32 format and, therefore, either starts with the letter q or the string ‘bitcoin cash:q’. The advantage of the Bitcoin Cash address format is that helps to separate a BCH address from a BTC Address. This demarcation, in turn, helps to prevent sending funds to the wrong address.

Bitcoin Donation Address

Many of the non-profits and charitable organizations accept donations with Bitcoins. Watchdog organizations that often face strict surveillance from authoritarian regimes also prefer to accept bitcoin donations. It is mostly because bitcoin donations are hard to trace back to the original address of the donor. Another advantage of making donations in Bitcoin is that the IRS considers Bitcoins as property. As they are considered property, Bitcoins do not come under the purview of the capital gains tax and are tax-deductible. 

Owing to these advantages, many organizations have their Bitcoin donation addresses. Bitcoin donation addresses have also gained popularity for the generosity of the Bitcoin community. For each scammer who attempts to scam or compromise the integrity of this platform, many others leverage the advantages of the transparency and anonymity of Bitcoin donations to support a cause or a movement. Organizations that collect donations in Bitcoin, either publish their Bitcoin donation address on their website or, for more security, provide an option to generate a random Segwit address. 

Final Word

Since the launch of Bitcoin, the security and integrity of a Bitcoin address have been of utmost importance for the developers. As we have seen already, many different types of Bitcoin addresses have come up since its inception. It can be reasonably assumed, that innovation would continue to make these addresses more convenient to use and more secure.