You can send and receive bitcoins with a Bitcoin address, just like a traditional bank account number. If you use the official blockchain wallet, you are already using Bitcoin addresses!
However, not all Bitcoin addresses are created equal, so it’s important to know how to use them effectively if you regularly send and receive bitcoins.
What is a Bitcoin Address?
A Bitcoin wallet address is a distinct identifier that allows you to send and receive bitcoins. It is a virtual address that indicates the destination or source of a bitcoin transaction, telling people where to send bitcoins and where they received a bitcoin payment. It can be compared to the e-mail system where you send and receive e-mails. In this case, your emails are bitcoins, your email address is your Bitcoin address, and your mailbox is your Bitcoin wallet.
Bitcoin addresses are usually linked to your Bitcoin wallet, which helps you manage your bitcoin. A Bitcoin wallet is software that allows you to receive, send and store bitcoins securely. You need a Bitcoin wallet to generate a bitcoin address.
Structurally, Bitcoin addresses are usually between 26 and 35 characters and are usually alphanumeric. They have private keys, which you need to perform transactions between addresses. These addresses have a standard format: a pay-to-public key hash (P2PKH).
Bitcoin addresses were launched after the discontinuation of the IP address-based system. This system created opportunities for cybercriminals to carry out man-in-the-middle attacks. The new system – Bitcoin addresses – has proven to be a safer way for people to send bitcoins.
What are the different types of Bitcoin addresses?
There are several types of Bitcoin addresses. Each type works uniquely and has a specific method of identification.
Segwit or Bech32 address
Segwit addresses are also known as Bech32 addresses or bc1 addresses because they start with bc1. This type of Bitcoin address limits the amount of information a transaction stores. As a result, segwit addresses can save you about 16% on transaction fees. Because of these cost savings, it is the most widely used Bitcoin address for transactions.
- This is an example of a Bech32 address: bc1q42kjb79elem0anu0h9s3h2n586re9jki556pbb
Older or P2PKH address
Legacy Bitcoin addresses, or pay-to-public-key-hash (P2PKH) addresses, start with the number one and lock bitcoins to your public key. The address directs people to pay to your Bitcoin address.
Initially, when Bitcoin created the crypto scene, the old address was the only type available. Currently, it is the most expensive because it uses the most space in transactions.
- Here is an example of a P2PKH address: 15f12gEh2DFcHyhSyu7v3Bji5T3CJa9Smn
Compatibility or P2SH address
Compatibility addresses, also known as pay-to-script hash (P2SH) addresses, begin with the number three. The hash value of a compatibility address is specified in the transaction; it is not derived from the public key, but from a script containing specific conditions for spending.
These conditions are kept from the sender. They can vary from simple conditions (the user of public address A can use this bitcoin) to more complex (the user of public address B can only use this bitcoin after a certain time has passed and if he reveals a certain secret) . As a result, this Bitcoin address is about 26% cheaper than the old address option.
- Here is an example of a P2SH address: 36JKRghyuTgB7GssSTdfW5WQruntTiWr5Aq
Taproot or BC1P address
This type of Bitcoin address starts with bc1p. Taproot or BC1P addresses help provide privacy for spending during transactions. They also offer new smart contract capabilities for bitcoin addresses. Their transactions are smaller than legacy addresses, but slightly larger than native Bech32 addresses.
- An example of a BC1P address is as follows: bc1pnagsxxoetrnl6zi70zks6mghgh5fw9d1utd17d
Which Bitcoin Address Should You Use?
If you want to send bitcoins and know how to save money on transaction fees, you should use a segwit Bitcoin address. That’s because they have the lowest transaction costs; therefore, you will save more with this Bitcoin address type.
However, compatibility addresses provide great flexibility. You can use them to transfer bitcoins to new Bitcoin addresses because you can create scripts without knowing what type of script the receiving address is using. P2SH addresses are a good option for casual users who generate their addresses.
A legacy or P2PKH address is the traditional Bitcoin address, and although it pioneered the bitcoin address system, its high transaction fees have made it less attractive to users.
If privacy during transactions is a priority for you, you should use a taproot or BC1P address.
Can you send Bitcoin across different addresses?
Yes, you can send bitcoin to different Bitcoin wallet types. That’s because Bitcoin addresses are cross-compatible. You should have no problem sending from one type of Bitcoin address to another.
If there is a problem, it is probably with your service or with your cryptocurrency wallet client. Upgrading or updating to a Bitcoin wallet that offers the latest types of Bitcoin addresses will likely solve the problem.
Generally speaking, the wallet client handles everything related to your Bitcoin address. As a result, you shouldn’t have any problems, especially if you double-check your Bitcoin address to confirm its accuracy before sending.
Best Practices for Using Bitcoin Addresses
Here are the best practices to avoid making costly mistakes with bitcoin addresses.
1. Double check the receiving address
It is good practice to always double check the recipient address. A hidden virus can mess with the clipboard when you copy and paste the address. Always double check that the characters are exactly the same as the original address so you don’t send bitcoins to the wrong address.
2. Test the address
If you’re nervous about sending bitcoins to the wrong address or even doing transactions in general, testing out the receiving address with a small number of bitcoins can help ease your fears. This tip is especially useful for beginners to gain experience before sending huge amounts of bitcoins.
How to Recover Bitcoin Sent to Wrong Address
Recovering bitcoins you mistakenly sent to the wrong address is almost impossible. But if you know who owns the address you sent bitcoins to, a good strategy is to reach out to them. Luck may be on your side and they may send it back to you.
In addition, you can also try the OP_RETURN function by sending a message saying that you have mistakenly transferred bitcoins to the Bitcoin address involved. Try to describe your mistake clearly and appeal to them to consider helping you. These methods are not reliable, so you should not send bitcoins without double-checking the address.
Bitcoin Addresses: The Virtual “Bank Account”
Bitcoin addresses have some similarities with modern bank accounts, and that is because bank accounts are also used in transactions to send currencies. But in the case of Bitcoin addresses, bitcoins are sent.
Although there are different types of Bitcoin addresses, you can send bitcoins from one type to another due to their cross-compatibility feature. However, always double-check the address before sending your bitcoins, because recovering them can be very challenging.
