The Importance of Identifying Different Type of Bitcoin Address

[BitDane]

This might be a general knowledge for the old member of this forum but I believe it is important for a beginner to know about the development and different types of Bitcoin address since not all type of Bitcoin address have the same feature although they all serve as a distinct identifier that allows us to send and receive bitcoins. Just like the later type of Bitcoin address which gives more privacy and required cheaper transaction than the older Legacy type of Bitcoin address. 

It is also important to identify the type of Bitcoin address just by looking at the format of the Bitcoin address and here is the example addresses and some feature of each type

Legacy Address or P2PKH
15f12gEh2DFcHyhSyu7v3Bji5T3CJa9Smn  this kind of address format is called a Legacy Address or pay-to-public-key hash (P2PKH) and known to be the most expensive if used in transferring Bitcoin.  This is also know the original/initial Bitcoin address format when Bitcoin was released.

Pay-to-Script-Hash(P2SH)
36JKRghyuTgB7GssSTdfW5WQruntTiWr5Aq this format is called compatibility address or also known as Pay-to-Script-Hash(P2SH)  it is also stated that using this address can save 26% than using the Legacy address for transaction.

Segwit or Bech32 address (bc1q)
bc1q42kjb79elem0anu0h9s3h2n586re9jki556pbb this address format is known as Segwit or Bech32 address using this format can save up to 16% than using P2SH and is also known as the cheapest address type to use for Bitcoin transaction.

Taproot (bc1p)
bc1pnagsxxoetrnl6zi70zks6mghgh5fw9d1utd17d this address format is known as a taproot address and has more privacy than any other type of Bitcoin address but is slightly more expensive than the segwit address in terms of transaction fee.  Taproot also enable smart contract opportunities for Bitcoin address.  This is by far the latest update of Bitcoin address.

One important thing to know is that one can send Bitcoin across the different Bitcoin address type since Bitcoin address are cross-compatible to any Bitcoin address type.  Knowing this we must not worry if some how we send our Bitcoin from Legacy address to Taproot address, and can't see the balance appear on the wallet, there is no need to panic because we just need to update or upgrade our wallet to a Taproot compatible wallet in order to see the balance correctly.  Besides we can always check the transaction on the blockchain if the transaction is successful.

Knowing the different type of Bitcoin address and its feature will enable us to use Bitcoin address type to its maximum potential like if we want to save transaction fee, we are able to know that segwit or bech32 is the best choice to use.  Aside from that knowing these type of addresses, newbies won't be confused and is able to identify if ever they came across this kind of Bitcoin address format.


Btw, I wanted to keep this post short and direct so that readers will not get bored reading a wall of text when I can just provide the link or embed a link to each type of Bitcoin address if they wanted to read more details about these type of addresses.

[1714507157]

1714507157

[1714507157]

1714507157

[1714507157]

1714507157

[hosseinimr93]

Taproot (bc1p)
bc1pnagsxxoetrnl6zi70zks6mghgh5fw9d1utd17d this address format is known as a taproot address and has more privacy than any other type of Bitcoin address but is slightly more expensive than the segwit address in terms of transaction fee.  

This is not always true.
For example, when it comes to a transaction including multiple inputs and single output, you can decrease the fee with using taproot addresses. Taproot can also make multi-signature transactions cheaper.
For more information, visit the topic created by Charles-Tim.
Pay-to-taproot (P2TR) transaction fee

[benalexis12]

 what you said is okay with me, maybe I just want to correct something you mentioned there, I'm just not sure if others will agree with me here. You said here in your post that if we want to see that our Bitcoin holdings are balanced, we should upgrade the wallet to taproot.
At this point I don't think that's necessary, because we can still see it as a balance in our legacy wallet, even though the funds are placed in the taproot address, that's all, the rest is fine with me according to what you said.

[SeriouslyGiveaway]

Bitcoin Taproot (Bech32m - bc1p) adoption
Create Taproot address for your Bitcoin
[LIST] Wallets supporting Taproot
[Education] Bitcoin Privacy and Anonymity. Taproot

Use these transaction size calculators to see impacts of Bitcoin address types on transaction size and fee.
https://jlopp.github.io/bitcoin-transaction-size-calculator/
https://bitcoinops.org/en/tools/calc-size/
https://bitcoindata.science/plot-your-transaction-in-mempool.html

[Charles-Tim]

As hosseinimr93 commented already, saving fee with pay-to-taproot is possible while also saving fee is possible with segwit version 0 is possible.

Like if you are a campaign manager on this forum, you will pay to many address, if it is like from one input, expect the fee to be low for segwit version 0. If you just want to hold and continue to DCA and at time be consolidating your inputs, pay-to-taproot will save you more fee, I mean spending from more inputs. For transaction of 1 input and 1 or 2 outputs, segwit version 0 save fee but very little to something that may not worth comparison, but as the outputs increase, the more segwit version 0 save the fee.

[o_e_l_e_o]

Also Pay-to-Witness-Script-Hash (P2WSH) addresses starts from 3.

P2WSH addresses start with bc1q.

P2WPKH-P2SH, which are standard segwit addresses nested in a P2SH script (so called nested segwit), start with 3, as do all P2SH addresses.

P2WSH addresses, on the other hand, are native segwit scripts and are not nested in anything else. These start with bc1q, the same as standard segwit P2WPKH addresses.

A P2WPKH address is 42 characters long, which contains a 20 byte witness program - RIPEMD160(SHA256(pubkey)). Here's an example transaction spending from such an address: https://mempool.space/tx/bebb7ccaaf9141340a803df0b21d0296ce6c103dc2bac69b2771a8a5703564e9
A P2WSH address is 62 characters long, which contains a 32 byte witness program - SHA256(script). Here's an example transaction spending from such an address: https://mempool.space/tx/de85fa66ea73d6e280e2bd077399b1027bc0832856c77f9114a4dda568baad2e

[Charles-Tim]

@o_e_l_e_o
Because there was no discussion on this lately, I have started to forget about it. Thanks for pointing that out. Is P2WSH the segwit for multisig addresses? I think it is if I recall correctly. Also what is the difference between the 3 prefix addresses for single sig (nested segwit) and multisig (legacy) in relation to this.

[o_e_l_e_o]

Is P2WSH the segwit for multisig addresses?

Essentially, yes. P2WSH (pay to witness script hash) is the address type for any segwit address which is based on a script (such as a multi-sig script) rather than based on an individual public key (as is the case with standard single sig addresses).

However, you could also nest a segwit multi-sig inside a legacy P2SH address, just as you can nest a regular segwit address inside a P2SH address.

Also what is the difference between the 3 prefix addresses for single sig (nested segwit) and multisig (legacy) in relation to this.

There is no difference. Every P2SH output starts with a 3, regardless of what the script inside is. The script could be a legacy multi-sig, it could be a segwit pubkey, it could be a multi-sig segwit script as I've explained above, it could be a timelock, or it could be hundreds of other things. It is impossible to say what the script is until the address has been spent from, at which point the locking script must be revealed. Prior to being spent from, all we know is the hash of the script, not the script itself.

[Findingnemo]

I am not that familiar with Taproot so thanks for pointing out this which helped me to do some research about Taproot and understand the concept of this upgrade. I never had Taproot address since it's not available all the wallets but can be useful for someone who expect more privacy and expect fast confirmation.

But anyone can help me to understand this better

The Taproot upgrade batches multiple signatures and transactions together, making it easier and faster to verify transactions on Bitcoin's network.

[o_e_l_e_o]

But anyone can help me to understand this better

The Taproot upgrade batches multiple signatures and transactions together, making it easier and faster to verify transactions on Bitcoin's network.

You might be interested in reading BIPS 340, 341, and 342, which all deal with Taproot and which explain this in greater detail.

At a very basic level, Taproot moves away from the usual ECDSA signatures which are used in other address types and instead uses Schnorr signatures. One of the advantages of Schnorr signatures is that you can combine multiple public keys into a single public key, and multiple signatures in to a single signature which remains valid for all the individual component signatures. This is known as key aggregation. So if you are using a 3-of-5 multi-sig (for example), instead of having to provide five public keys and three signatures which every other node has to verify, with Taproot you can provide a single public key and a single signature and every other node only has to verify this one signature.

There is another feature known as batch validation. Instead of each node having to individually verify the signature of every transaction in a block, with Schnorr signatures you can combine all the signatures in to one, even if you don't know the private keys. This allows each node to perform a single verification, rather than having to individually verify each and every transaction.

[Findingnemo]

But anyone can help me to understand this better

The Taproot upgrade batches multiple signatures and transactions together, making it easier and faster to verify transactions on Bitcoin's network.

. So if you are using a 3-of-5 multi-sig (for example), instead of having to provide five public keys and three signatures which every other node has to verify, with Taproot you can provide a single public key and a single signature and every other node only has to verify this one signature.

I can understand that upgradation to Taproot address will make the transaction to get confirmed easier but how can we say it faster? Cause it has nothing to do with the block time intervals unless most transactions included into that block enabled Taproot so it will make the network confirmation faster than now.

[o_e_l_e_o]

I can understand that upgradation to Taproot address will make the transaction to get confirmed easier but how can we say it faster?

The quote you shared says nothing about transactions being confirmed faster. It says transactions can be verified faster. This is the process by which each nodes checks each transaction and each block is valid, which is different to the process of transactions being mined in to a block. By making verification faster and easier, it reduces the strain and resource requirements on existing nodes and makes it easier for anyone to run a node with less powerful hardware.

Although in the case of multi-sig, Taproot transactions are much smaller since they only contain a single pubkey and a single signature instead of multiple of each, as discussed above, so you could argue they will confirm faster given the same absolute fee.

[justinlamode]

Thank you for sharing this post. You have helped settle my curiosity of seeing different BTC addresses without a full knowledge of what they are.

A simple question I need to know is how to get or where are these addresses gotten? Is there a single website or application where one can toggle these addresses?

A newbie will most likely get confused on how to access these addresses.

[hosseinimr93]

A simple question I need to know is how to get or where are these addresses gotten? Is there a single website or application where one can toggle these addresses?

There are many wallets that you can use for generating bitcoin addresses.
For example, you can use Electrum (which is one of the best SPV wallets) for generating legacy and bech32 addresses. You can also use Sparrow for generating all four types of addresses mentioned above.