Why are there different types of Bitcoin addresses?

The Bitcoin cryptocurrency revolutionized how we transact money, giving everyone the chance to own and invest in it. According to the white paper, Bitcoin is a decentralized store of value whose prices depend on supply and demand, media attention, and market dynamics. The document also addresses how Bitcoin incentivizes individuals to contribute to the well-being of the blockchain or how cryptography maintains privacy. 

Now, as the cryptocurrency nears worldwide adoption, anyone can buy Bitcoin with bank transfer, Google Pay, or through P2P trading, so it’s pretty accessible. However, if we analyze the process behind every transaction, we can see how complex Bitcoin is, especially as the price of Bitcoin fluctuates, which is why many investors still struggle with maintaining their portfolios in good condition.

With so much material to learn, acquiring a cryptocurrency can be challenging, but not impossible. In this article, we’ll explore Bitcoin’s address types and their importance on the blockchain. 

Bitcoin addresses for secure transfers

The process of sending Bitcoins doesn’t require the involvement of official banking institutions, but it revolves around steps that ensure security and transparency. When you create a transaction, you need your address, or the private key, and the recipients’, also called the public key. After the digital signature and the mempool broadcasting, the transaction is finalized.

If we examine Bitcoin addresses more closely, we find they usually begin with the digits one, three, or bc1, ensuring unique identification and supporting safe transactions. These addresses contain important information about users, such as their names and locations, but due to anonymity features, they are not showcased on the blockchain. 

There are different types of Bitcoin addresses 

There are a few types of Bitcoin addresses because the blockchain and cryptocurrency evolved, so the cryptography behind these concepts must change to be compatible with updated systems. 

Some addresses are also leveraged for experiments, so developers can explore new possibilities for improvements or risks. For example, testnet addresses that start with two are based on a Testnet Pay-to-Witness-Public-Key-Hash (P2WPKH) format. 

Here are four different types of Bitcoin addresses:

- P2PKH, or Legacy, is a straightforward address that allows investors to send and receive Bitcoins. Since they’re so common, most wallets and exchanges support them;

- P2SH, or SegWit, ensures users access to assets, and they’re an updated version of regular addresses as they employ low fast and fast speeds;

- Native SegWit or Bech32 are some of the most efficient addresses and are more approachable to users, but they are primarily used in services and apps that collaborate with the Bitcoin network;

- P2TR, or the Taproot address, is the most advanced form as it targets scalability, flexibility, and security but is less used due to limited support;

How to read a Bitcoin address 

A Bitcoin address might look like an amalgam of digits, but with enough training, you may be able to analyze them from a professional perspective. Usually, a Bitcoin address has about 26 to 35 characters and avoids the number zero, the letter “o” to not create confusion. At the same time, making sure addresses are correct is done by a checksum method, with an additional encoding that eliminates confusing characters. 

If you’re curious about it, know that different cryptocurrencies have unique addresses, for example:

- Ethereum addresses start with 0x and have 40 characters;

- Litecoin addresses are similar but stars with l, m, or three;

- Monero addresses start with 4 of eight and have 95 characters.

Reading and using Bitcoin addresses for transfers might pose various challenges in accuracy, which is why users need to always double-check before sending. On the other hand, using specific wallets will help you, since they don’t allow sending funds to invalid addresses. 

The challenge of address poisoning 

Although crypto addresses are pretty safe, the latest attacks from hackers are making it more challenging to protect addresses. The poisoning technique involves changing the transaction history after generating addresses similar to the victim's. Illicit actors rely on people’s carelessness; maybe not everyone carefully checks the address at every transaction. 

The technique lets the hacker compromise one’s portfolio, directing a person’s funds in the opposite direction. The easiest way to prevent this is to double-check the address before making the transaction. 

Still, if you want to benefit from superior security, you can use an address book which requires confirmation before using it. At the same time, you could get a cold wallet whose usage doesn’t require internet connection as it’s less exposed to fraudulent phishing attacks. 

Securing your wallet to protect the address 

The address is often compared to an email you use in the wallet to make transactions. Therefore, a simple way to protect it is by securing your wallet and ensuring you’re not exposing it to cybersecurity risks. 

For example, you should be wary of your passwords, always employ multifactor authentication, and change your password frequently. Moreover, your passwords should also be somewhere offline, such as on a piece of safely placed paper. This ensures that there’s no chance for someone to access it. 

If you choose to work with an online wallet, make sure to research the company behind it throughout because there are only a few that can be considered trustworthy. Many previous cases have shown us how exposed some wallets are to risks because they don’t invest enough in security. 

The future of wallet protection includes many exciting technologies, from biometric authentication to smart contract integration. These techniques will help users withstand the ever-changing hacking measures of compromising portfolios and push for Web3 and cryptocurrency adoption worldwide.

Final thoughts 

A Bitcoin wallet is similar to an email address because it allows users to exchange cryptocurrencies and communicate without much hassle. Addresses are usually long and have specific features, so learning about them is crucial to getting started in crypto investment. Other cryptocurrencies, like Ethereum, have different addresses to avoid confusing users when exchanging. Addresses are very important and must be well-secured, which is why keeping them offline and using cold wallet storage to protect them from online threats is recommended.