Hello everyone, I am Paul from Coinmanlabs. During last year’s inscription craze and this year’s Runes, many people were unclear about the address types of BTC and it is very confusing. Today we will use eight questions to help you understand clearly.

Q: Why are there different types of BTC addresses?

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

Compatibility and Transition: As the Bitcoin network grows and technology advances, new address formats are introduced, but to maintain backward compatibility, older address formats are still supported. Therefore, Bitcoin needs to support multiple address types so that users can seamlessly migrate and interact with different addresses.

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

Technical Innovation: New address formats are often introduced to introduce new technical features and improvements. For example, Bech32 addresses introduced Segregated Witness, an important technical upgrade designed to increase transaction throughput, reduce transaction fees, and enhance the security of the network.

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

In summary, Bitcoin needs multiple address types to meet the needs of different users and to continuously promote technological innovation and development, providing safer and more efficient blockchain solutions.

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

There are now four BTC address types, each with slightly different formats and usage of the address. The following are some common Bitcoin address types:

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

P2SH (Pay-to-Script-Hash): Starting with “3”, it is used for multi-signature and other complex transaction scripts. This type of address script is validated in the transaction. For example: 3J98t1WpEZ73CNmQviecrnyiWrnqRhWNLy

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

Taproot Address: This type of address starts with “bc1p”. To improve block space efficiency and reduce fees, SegWit introduced some changes in the way addresses are constructed. Therefore, on top of SegWit addresses, Taproot addresses were 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. The term means to pay to the public key hash. In P2PKH transactions, the payer sends funds to the recipient’s public key hash address, rather than directly 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 the hash value generated from their public key, rather than the public key itself. One benefit of this is that even if the public key hash address is exposed, it will not reveal the recipient’s actual public key, thereby increasing security. At the same time, it makes transaction data on the blockchain more compact because public key hash addresses are relatively short.

Overall, P2PKH is a common, simple Bitcoin transaction type designed to improve privacy and security while keeping transaction data compact.

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

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

The introduction of this method was to support more transaction types, such as multi-signature transactions and other complex transaction scripts. In P2SH transactions, the recipient’s address is a script hash, not an actual public key or public key hash. This means the sender only needs to know a script’s hash value, not the specifics of the script. The actual script that matches the script is only needed when spending the output.

One of the benefits of P2SH is that it increases the flexibility of the Bitcoin network. It allows complex transaction scripts to be transacted without exposing the actual script content, and it can hash multiple different types of scripts to the same address. This provides support for more complex transactions like multi-signature transactions, while increasing the network’s security and privacy.

Therefore, P2SH, as a type of transaction output, 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 the surnames of its designers, Pieter Wuille and Greg Maxwell, and an error detection/correction algorithm called “ech”. This algorithm, used in some languages’ phonetic pronunciation rules, distinguishes “1” from “l” and “0” from “o”, reducing the possibility of users entering the wrong address. Therefore, “Bech” signifies the key innovation in this address design, and “32” indicates the address length is 32 characters. Thus, the name Bech32 address can be described as a descriptive name composed of its design’s key features.

Q: Why does a BTC wallet generate a different address after each use?

In some Bitcoin wallets, a new address is generated each time a transaction is sent or received for privacy and security reasons:

Privacy Protection: Using a new address can enhance user privacy. If the same address is used for each transaction, these transactions can be traced to the same address, exposing the user’s transaction history and funds movement. By using a new address, users can better protect their privacy and reduce information disclosure to others.

Security Enhancement: Regularly changing addresses can reduce attacks targeting specific addresses. If an address is tracked and attacked by a malicious party, using a new address reduces the risk of being attacked. In addition, if one of the user’s private keys is exposed, only the funds on the address associated with the private key will be compromised, and the funds on other addresses will still be safe.

Following Best Practices: Many security experts recommend changing addresses regularly as a best practice to help keep personal funds safe and private.

Although generating a new address each time may cause some inconvenience, such as the need to update the collection address, this practice can increase a user’s privacy and security levels and is therefore adopted by many Bitcoin wallets.

Q. Shouldn’t I need to change wallets if I have multiple addresses?

Indeed, generating new addresses is typically achieved by using 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 uses an elliptic curve algorithm to generate a pair of keys: a public key and a private key. Then, generate the address from the public key. Each time a new address is generated, a new public and private key pair is generated, which in turn generates a new address.

This approach ensures that each address is associated with a unique key pair, enhancing security and privacy. At the same time, due to the efficiency of the elliptic curve encryption algorithm, the process of generating new addresses is usually very fast.

Q: Isn’t that wrong? Generating multiple addresses?

Many modern Bitcoin wallets use the HD Wallet (Hierarchical Deterministic Wallet) technology to manage addresses. HD Wallets can manage a large number of addresses more conveniently and provide some additional security and backup functions.

HD Wallets generate a series of key pairs (public and private keys) using a seed, rather than generating a new key pair for each address as traditional wallets do. 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 Recovery: By backing up the seed, users can easily back up the entire wallet and conveniently recover all addresses and funds when needed.

Determinism: Since all addresses are derived from the same seed, the entire address chain can be generated deterministically, without needing to save each address’s private key in the wallet.

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

Hierarchical Structure: HD Wallets support a hierarchical structure, allowing the creation of multiple sub-wallets, each with its own seed. This structure aids in managing funds for multiple accounts or purposes.

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

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