Confused about the different types? All about BTC address types

Hello everyone, I'm Paul from Coinmanlabs. Last year it was all about inscriptions, and this year it's about Runes. Many people are unclear about the address types of BTC, and it's very confusing. Today we will clarify it with eight questions.

Q. Why are there different types of BTC addresses?

Bitcoin needs multiple address types mainly to meet different requirements and technical demands, and to provide better security, privacy, and scalability. The reasons are mainly:

Compatibility and Transition: With the development of the Bitcoin network and technological advancements, new address formats have been introduced. However, to maintain backward compatibility, the old address format is still supported. Therefore, Bitcoin needs to support multiple address types so that users can seamlessly migrate and interact using different addresses.

Security and Privacy: Different types of addresses provide different levels of security and privacy. For example, Segregated Witness addresses (Bech32 addresses) have higher security features, while P2SH addresses are commonly used for advanced transaction scripts such as multisignature, providing more flexibility and security.

Technical Innovation: The new address format is usually introduced to bring in new technical features and improvements. For example, Bech32 address introduces Segregated Witness (SegWit), which is an important technical upgrade aimed at increasing transaction throughput, reducing transaction fees, and enhancing network security.

User experience: Different types of addresses may affect the user experience and interaction. For example, Bech32 addresses have higher error detection capabilities, which can reduce the risk of users entering the wrong address, thereby improving the user experience.

In conclusion, Bitcoin needs multiple address types to meet the needs of different users and continually drive technological innovation and development to provide more secure and efficient blockchain solutions.

Q. How many types of BTC addresses are there now?

Now there are four types of BTC address, each type has slight differences in address format and usage. Here are some common Bitcoin address types:

P2PKH (Pay-to-Public-Key-Hash): This is the most common address type, starting with "1". This address type is the earliest and most widely accepted. For example: 1BvBMSEYstWetqTFn5Au4m4GFg7xJaNVN2

P2SH (Pay-to-Hash): Starting with "3", it is used for multi-signature and other complex transaction scripts. This address type script is verified in transactions. For example: 3J98t1WpEZ73CNmQviecrnyiWrnqRhWNLy

Bech32: Starting with "bc1q," it is the latest address format for Bitcoin, also known as native Segregated Witness (SegWit) address. Bech32 addresses have higher error detection capabilities and support advanced features such as Segregated Witness. For example: bc1qar0srrr7xfkvy5l643lydnw9re59gtzzwf5mdq

Taproot Address: This type of address starts with "bc1p" and introduces some changes to the construction of addresses in order to improve block space efficiency and reduce fees. Therefore, based on SegWit addresses, Taproot addresses are developed, which further reduce storage space, improve transaction efficiency, and provide better privacy.

Q: Why is it called P2PKH (Pay-to-Public-Key-Hash)?

P2PKH (Pay-to-Public-Key-Hash) is a term defined by one of the founders of Bitcoin, Satoshi Nakamoto. It means paying to the public key hash. In a P2PKH transaction, the payer sends funds to the recipient's public key hash address instead of directly sending to the recipient's public key. This method enhances privacy and security because the public key hash address does not directly expose the recipient's public key.

In P2PKH transactions, the recipient's address is generated using the hash of their public key instead of using the public key itself directly. One benefit of doing this is that even if the public key hash address is leaked, it will not reveal the recipient's actual public key, thus enhancing security. Additionally, this also makes the transaction data on the blockchain more compact, as the public key hash address is relatively shorter.

In general, P2PKH is a common and simple Bitcoin transaction type designed to enhance privacy and security while maintaining the compactness of transaction data.

Q. Why is it called P2SH (Pay-to-Hash)?

P2SH (Pay-to-Hash) is a type of transaction output in Bitcoin, introduced by Gavin Andresen in 2012. This type of transaction output allows payments to be associated with a script hash instead of directly with a public key or public key hash.

This method is introduced to support more transaction types, such as multi-signature transactions and other complex transaction scripts. In P2SH transactions, the receiving address is a script hash, rather than an actual public key or public key hash. This means that the sender only needs to know the hash value of a script, without needing to know the specific content of the script. Only when spending the output, the actual script matching the script needs to be provided.

One of the benefits of P2SH is to increase the flexibility of the Bitcoin network. It allows complex transaction scripts to be transacted without exposing the actual script content, and can hash multiple different types of scripts to the same address. This provides support for more complex transactions such as multisignature transactions, while also increasing network security and privacy.

Therefore, P2SH, as a transaction output type, provides an important foundation for the development and innovation of the Bitcoin network.

Q. Why is it called Bech32?

The Bech32 address is named after the first letter "B" of its designers Pieter Wuille and Greg Maxwell's surnames, as well as an error detection/correction algorithm called "ech". This algorithm uses pronunciation rules from some languages to differentiate "1" from "l" and "0" from "o", reducing the likelihood of users entering the wrong address. Therefore, "Bech" represents the key innovation in this address design, and "32" represents the length of the address being 32 characters. As a result, the name of the Bech32 address can be said to be a descriptive name composed of the key features of its design.

Q. Why is the address of the wallet different every time when using some BTC wallets?

In some Bitcoin wallets, a new address is generated every time a transaction is received or sent. This is done for privacy and security reasons.

Privacy Protection: Using a new address can increase user privacy. If a user uses the same address for every transaction, these transactions can be traced back to the same address, thereby exposing the user's transaction history and fund flow. By using a new address, users can better protect their privacy and reduce the risk of information leakage to others.

Enhanced security: Regularly changing the address can reduce attacks on specific addresses. If an address is maliciously tracked and attacked, using a new address can drop the risk of being attacked. In addition, if a user's private key is exposed, only the funds on the address associated with that private key will be threatened, and funds on other addresses will remain safe.

Follow best practices: Many security experts recommend regularly changing addresses, which is a best practice that helps maintain the security and privacy of personal funds.

Although generating a new address each time may cause some inconvenience, such as the need to update the receiving address, this practice can enhance user privacy and security. Therefore, it is adopted by many Bitcoin wallets.

Q·, multiple addresses shouldn't need to change wallets, right?

The generation of a new address is typically achieved through the use of Elliptic Curve Cryptography (ECC). The elliptic curve encryption algorithm used in Bitcoin is secp256k1, which is a widely used encryption algorithm in the cryptocurrency field.

Specifically, the wallet will use the elliptic curve algorithm to generate a pair of keys: a public key and a private key. Then, an address is generated from the public key. Each time a new address is generated, a new pair of public and private keys are generated, resulting in a new address.

This method ensures that each address is associated with a unique key pair, thereby enhancing security and privacy. Moreover, due to the efficiency of the Elliptic Curve Cryptography algorithm, the process of generating new addresses is typically fast.

Q. Isn't that wrong? Generating long addresses?

Many modern Bitcoin wallets use HD Wallet (Hierarchical Deterministic Wallet) technology to manage addresses. HD Wallet can make it more convenient to manage a large number of addresses and provide additional security and backup features.

HD Wallet generates a series of key pairs (public key and private key) using a seed, instead of generating a new key pair for each address like traditional wallets. These key pairs are generated according to the standards defined in BIP32 (Bitcoin Improvement Proposal 32) and BIP44 (Bitcoin Improvement Proposal 44).

HD Wallet has the following advantages:

Backup and Restore: By backing up the seed, users can easily backup the entire wallet and conveniently restore all addresses and funds when needed.

Deterministic: Since all addresses are derived from the same seed, the entire address chain can be deterministically generated without the need to store the private key for each address in the wallet.

Improved Privacy: HD Wallet can generate a new address for each transaction without exposing the previously used addresses. This can enhance user privacy.

Hierarchical Structure: HD Wallet supports hierarchical structure, which allows the creation of multiple sub-wallets, each with its own seed. This structure helps in managing funds for multiple accounts or purposes.

Therefore, modern Bitcoin wallets usually adopt HD Wallet technology to provide a better user experience, security, and privacy protection.