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3 Bitcoin Address Formats You Need to Know

Bitcoin address

August 27, 2020 | 

JOHN K MWANIKI |  1 Comments| 

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A bitcoin address is an identifier of where to send a cryptocurrency. It is the virtual location of the receiver. It works the same way an email does when sending a fiat currency. The only difference is that the addresses are temporary. They also cannot hold the balance as a wallet does.

The Bitcoin addresses come in various formats. The standard format is P2PKH. Still, the Bitcoin world is always changing. The formats must also evolve to accommodate the changes. That is why there are different address formats.

Here are the three Bitcoin address formats to know; 

1.    P2PKH

Also, known as the legacy addresses, P2PKH is the oldest Bitcoin address format. The abbreviation P2PKH stands for “Pay-to-Pubkey Hash.”

It starts with the number 1 and is 26 to 36 characters. This address tends to come with higher transaction fees. The format does not have any upgrades hence larger. 

The P2PKH addresses are not compatible with the segwit addresses. Still, one can send money from the segwit to the P2PKH address without a hitch. It is also the default address in most blockchains

2.    P2SH

The P2SH comes with a similar structure to that of the P2PKH. The only difference is that it starts with a three instead of the 1. The P2SH abbreviation in full is Pay to Script Hash. 

The address format supports several transactions. It also comes with more functionalities than the P2PKH. It is also the most popular due to the high-level security. It enables digital transactions with the multi-digital address script. The transactions need more than one digital signature to prove ownership. 

It also supports non-native segwit transactions through the P2WPKH-in-P2SH process.
Sending funds through P2SH is straightforward. The recipient handles the full redeem script on the funds. Lacking the script allows the sender to transfer funds without knowing the spending. 

The sender has the option of using a short 34-figure address without the full redeem script. The more temporary address reduces the possibility of human error during transcription. Transacting using the P2SH also comes with lower fees. The recipient decides the spending transaction size and corresponding ledger. 

3.    Bech32

Bech32 is the most advanced of the address formats. Each address starts with a “bc1.” It is also longer compared to the P2SH and P2PKH. The address is as a result of the Bitcoin developers looking to avoid earlier concerns. 

The earlier addresses were base58 and truncated double-SHA256 checksum. They were complicated with varying letters and numbering. Verifying the codes also required too much time. 

Bech32 comes with one of the best user experiences. It comes with lower transaction fees. Supporting several addresses allows users many transaction options. It also reduces the chances of errors during transactions. The address enables the user to countercheck characters in case of any mistake. 

The only concern with the address format is that it is a little slower than the other addresses. Still, the speeds vary depending on workload and the blockchain capacity. 

The several benefits of using the Bech32 has seen it rise in the acquisition. Almost all wallets and exchanges support sending money to Bech32 addresses. 

Understanding Segwit 

Segwit is the one concept that features in all the different Bitcoin address formats. The better addresses are those that are segwit compatible. 

Bitcoin contended with the lower transaction speeds in the early days. The coin comes with a proof-of-work transaction validation. It is the best way to avoid scams and other issues in transactions. It records data on nodes that combine to form a blockchain. The blockchains can only accommodate limited nodes within a specific period. 

The system led to lower transaction speeds. The blockchain could only accommodate seven transactions per second. The Bitcoin users got torn on how to increase these speeds. A group proposed increasing blockchain, which the others rejected. That is where Segwit came in. 

It is the solution for the impasse on increasing the block size. The system separates signature and witness data from bitcoin transactions. The remaining space on the blockchain accommodates additional transactions. Supporting more transactions increases scalability.

Some of the Bitcoin users were still opposed Segwit and opted to increase blockchain size. The result was the Bitcoin Cash after a hard fork. From the growth patterns of both coins, it is evident Segwit is effective. Bitcoin users have accepted the solution in droves. Almost half of all Bitcoin transactions currently support Segwit. 

Reasons to Choose Bitcoin Addresses that Support Segwit 

The Bitcoin addresses with Segwit support have been growing in recent times. Most of the businesses accepting Bitcoin are likely to use the Bech32 address formats. Such addresses come with convenience.

The Segwit supported addresses come with faster transaction speeds. They are also a little cheaper. Transaction costs in Segwit cost around 25 to 40 per cent lesser.  

Segwit also helps in security. There have been cases of receivers modifying codes to get more coins from the sender. Segwit however, separates the signatures from the other data. There is no way an unscrupulous user would interfere with then match them again. 

Bottom line 

The role of Bitcoin addresses is integral in transactions. After phasing out IP addresses in crypto, the addresses have been quite reliable. There are several address formats to use. The three main ones are P2PKH, P2SH, and Bech32.

The P2PKH remains the legacy format. It has been in use since the earlier days. P2SH is the most popular. It is widespread due to the convenience of use. 

Bech32 is the futuristic address platform. It comes with faster and more affordable transactions. 

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