Popular Science | Types of Bitcoin Addresses and How to Use Wallets

In the pursuit of better technology, some of the side things are bound to get a little confusing. Although the formatting of Bitcoin addresses has changed a lot, it is really not something that ordinary people need to care about. Bitcoin has used multiple standards over the years, sometimes multiple standards at the same time, which makes these strange strings even more terrifying, too terrifying.

Different types of Bitcoin addresses are basically cross-compatible, meaning that funds in any address can be sent to any other address. If you have problems sending funds to a certain address, it is most likely a problem with your wallet client. Just try upgrading your wallet to support the address types described below.

Generally, your wallet software will help you manage your addresses and prevent you from sending funds to an invalid address. However, this may not be the same across wallets. The Trezor Suite app, which recently launched a public beta, prevents you from sending money to invalid addresses, supports all common address types, and helps you avoid overpaying for fees; this last issue is common with popular wallet software, especially during busy network periods.

What do different types of Bitcoin addresses look like?

To comfortably send and receive Bitcoin, you need to know two things: how to identify a valid address, and what type of address you should use.

Most of the time, you should prefer to use the native segwit address (also known as the "Bech32 address"), which always starts with bc1. This address is the best because it uses the most data efficiently when constructing transactions, and therefore has the lowest transaction fees, because Bitcoin transaction fees are calculated based on the amount of data in the transaction.

The original Segregated Witness Bech32 address looks like this:

bc1qj89046x7zv6pm4n00qgqp505nvljnfp6xfznyw

However, not all wallet software currently supports the Bech32 format. A more common address format is the Pay to Script Hash (P2SH) address, also known as a nested SegWit address. It is also more efficient than traditional address types from a transaction fee perspective, and can be identified at a glance because it starts with 3. If you are not sure whether the destination address of your transaction supports SegWit, then the nested SegWit address generally does.

The Segregated Witness P2SH address looks like this:

3EmUH8Uh9EXE7axgyAeBsCc2vdUdKkDqWK

If you are using an older wallet software, you may need to use a traditional Pay to Public Key Hash (P2PKH) address. It is called a traditional address because it is considered a remnant of early technology. This address generally has higher fees, but it is still common. You can tell whether it is a P2PKH address by whether it starts with 1.

A traditional P2PKH address looks like this:

1MbeQFmHo9b69kCfFa6yBr7BQX4NzJFQq9

You should make it a habit to check the destination address every time you initiate a transaction to make sure it has not been tampered with. Although the beginning of the address can help you identify the type of address, the length of the address will also vary depending on the type. Bech 32 addresses have 42 characters - this is the newest address type - while P2SH and P2PKH addresses only have 32 characters.

What is a valid Bitcoin address to receive funds?

All of your address types are derived from the same source, your mnemonic (also called a "seed word"). Here is an example of a seed word from which all three types of addresses can be derived:

gentle melt morning mother surprise situate lens beef cloud inquiry genuine feel

With your mnemonic, you can create a valid Bitcoin address for receiving payments, any type of which is supported by your wallet software. With Trezor Suite, you can generate any of these address types with just a few clicks of the mouse.

Because of the nature of Bitcoin development and upgrades, you may encounter more address types over time, but the addresses are backward compatible. A Bech32 address can send funds to a P2SH or P2PKH address without any worries. The reverse is also true, you can also use traditional addresses to send funds to Bech32 and P2SH addresses; however, if you are using older wallet software, the software may not recognize Bech32 and P2SH addresses, thus preventing you from sending, even though the transaction is likely to succeed. This is just a problem with outdated protection mechanisms, not Bitcoin. As long as you upgrade the software, the transaction will go through.

When in doubt, you can safely use traditional addresses, as they have the widest support. While the wallet software you use may impose some restrictions on you, as long as it allows you to sign and send transactions, you have nothing to worry about. Bitcoin addresses are cross-compatible, and each type of address can send funds to any type of address. For the best flexibility and least obfuscation, upgrade to Trezor Suite, where you have full control over any type of address.

Why do address types keep changing?

Of the address types explained here, P2SH and Bech32 types are both related to the Segregated Witness upgrade, which is a transaction format upgrade that allows more transactions to be placed in a block, which can increase the throughput of the network. This also means that the benefits of Segregated Witness can only be enjoyed when transactions are initiated from Segregated Witness-compatible addresses (such as P2SH and Bech32 addresses); and the type of receiving address does not matter. From a privacy perspective, it is important to ensure that the remaining cryptocurrency in the transaction is returned to the same type of address (as the sender). Trezor Suite will automatically handle this for you.

How to get a Bitcoin address

Newcomers may be confused about how to get an address to receive money. It's simple, you just need to download a wallet software, such as the ones listed in this recommended list. The wallet software will generate a mnemonic for you, and use this mnemonic to generate available addresses and show them to you. A better practice is to use each address only once, whether it is for receiving or sending money. Because a mnemonic can generate an unlimited number of addresses, you don't need to worry about not having enough addresses, and this practice will provide you with additional privacy protection.

If you have a Trezor hardware wallet, you can use the Trezor Suite desktop software to create and manage Bitcoin addresses. The mnemonics used for these addresses are generated and kept in your Trezor hardware, so others cannot see your mnemonics or copy your wallet. You can also generate a new address for each transaction directly in Suite.

Find your Bitcoin receiving address

If you want to send Bitcoin to your wallet, you need to determine your receiving address. In Trezor Suite, you need to select the account you want to receive funds, and then click the "Receive" button. You will then see a list of the addresses you previously generated, as well as a preview of the latest unused addresses. Click "Show Full Addresses" to see the latest unused receiving addresses. After clicking, please check that the address displayed on the screen is consistent with the address displayed on your hardware wallet device, and then you can copy this address and send it to the person who sent you the money.

As you can see, here we use a Bech32 address starting with bc1, but unless the sender also uses a Bech address or a P2SH address, they cannot enjoy the low fee benefits provided by SegWit. Always using a Bech32 address to send money can save transaction fees.

If this is your first time receiving money, it is recommended that you send a test transaction before transferring all the funds in; this may seem a bit cautious, but for friends who are new to this world, this can offset the uncertainty. Try sending a small amount of Bitcoin (such as an amount in Satoshis) to test your receiving address, and wait patiently for this test transaction to be confirmed before you send more funds in.

How to send bitcoin to an address

When you need to pay someone in Bitcoin, you just need to get the receiving address provided by the other party. With Trezor Suite, just go to the "Send" field on the account page and enter the other party's address. Then, you have to check that the characters in the text box are consistent with the address you got at the beginning, because there is always a chance that your computer clipboard will be hijacked by malware.

After entering the address, set the fee you are willing to pay for the transaction. Higher fees will encourage miners to package your transaction first, so the other party will receive the money faster. In the figure below, we use the highest fee recommended by Trezor Suite, hoping to get the transaction on the chain within 10 minutes (this is the fastest speed that the Bitcoin network can achieve).

It is a good habit to check the fees you pay. Some wallet software's automatic settings will greatly overestimate the fees. Even during busy periods, you will only pay a few dollars in fees, not much more. If the fee recommended by the wallet seems too high to you, you can find the advanced options and enter a value yourself. There are many tools on the Internet that can help you see how much fees users who are sending transactions are paying, such as the second picture on this website. You can see in the picture below that most exchanges pay a fee level below 50 satoshis/byte, so the 51 satoshis/byte recommended by Trezor Suite should be on the chain within 10 minutes.

How to recover bitcoins sent to the wrong address?

In most cases, Bitcoins sent to the wrong recipient are irretrievable if it is an invalid address.

In rare cases, if you know who the destination address (effective address) of your transaction belongs to, you can try to contact him, and with luck he will be willing to send the funds back to you.

If both methods fail, the last resort is to use OP_RETURN to send a message to the address that you accidentally received the funds from, describing your mistake and asking for goodwill to return the funds. This is also likely to fail, so the way to prevent you from sending funds to the wrong address is always to check, check, and check again, and check whether the destination address of the transaction is correct before you press the send button.

The sad truth is that while many wallet software do a good job of identifying valid addresses, some users still send funds to the wrong type of address, such as sending Bitcoin to a Litecoin address, which some wallets cannot detect. In this case, the network cannot recognize that this is a bad transaction because from the wallet's perspective, the transaction is no different from any other transaction and is also a valid transaction. In this case, whether you can recover your funds depends on which network you entered the address to belong to. If you sent funds to a Litecoin address, as long as you have the private key to the receiving address, you should still be able to recover your Bitcoin (even if it is a Litecoin address). But if you don't have the private key to that address, then the possibility of recovery is almost impossible. If this happens, you will only be on your own. Also, remember to switch to a better wallet.

(Translator's note: Here is an additional explanation. Users cannot use this method to send bitcoins to the Litecoin blockchain. They just send these bitcoins to a Bitcoin address that coincides with a known Litecoin address. Some blockchain addresses are universal, that is, a valid Litecoin address may also be a valid Bitcoin address. Therefore, if you have the private key that generated this Litecoin address, it means that you can control the same Bitcoin address and can retrieve it. But if you fill in the address of a non-universal blockchain network, you are not so lucky.)

(over)

Original link:

https://blog.trezor.io/bitcoin-addresses-and-how-to-use-them-35e7312098ff

Author: SatoshiLabs