Hello, I am Paul from Coinmanlabs. Last year, there was a craze for inscriptions, and this year, for Runes. Many people are confused about the address types of BTC, which is very chaotic. Today, we will use eight questions to make it clear for everyone.

Q· Why are there different BTC address types?

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

Compatibility and transition: With the development of the Bitcoin network and technological advancements, new address formats have been introduced. However, to maintain backward compatibility, old 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 higher security features, while P2SH addresses are commonly used for advanced transaction scripts such as multi-signature, providing more flexibility and security.

Technological innovation: New address formats are often introduced to introduce new technical features and improvements. For example, Bech32 addresses introduce Segregated Witness, which is an important technological upgrade aimed at increasing transaction throughput, reducing transaction fees, and enhancing network security.

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

In summary, Bitcoin needs multiple address types to meet the needs of different users and continuously drive technological innovation and development to provide a more secure and efficient blockchain solution.

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

There are currently four types of BTC addresses, each with slightly different formats and uses. Here are some common Bitcoin address types:

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

P2SH (Pay-to-Script-Hash): Starting with "3", used for multi-signature and other complex transaction scripts. The script of this address type is verified in transactions. For example: 3J98t1WpEZ73CNmQviecrnyiWrnqRhWNLy

Bech32: Starting with "bc1q", it is the latest address format for Bitcoin, also known as native Segregated Witness addresses. Bech32 addresses have higher error detection capabilities and support advanced features such as Segregated Witness. For example: bc1qar0srrr7xfkvy5l643lydnw9re59gtzzwf5mdq

Taproot address: This type of address starts with "bc1p" and is designed to improve block space efficiency and reduce fees. SegWit introduced some changes in the construction of addresses, and based on SegWit addresses, Taproot addresses were developed, further reducing storage space, improving transaction efficiency, and providing better privacy.

Q· Why is it called P2PKH (Pay-to-Public-Key-Hash)?

The term P2PKH (Pay-to-Public-Key-Hash) was defined by one of the founders of Bitcoin, Satoshi Nakamoto. This term means paying 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 using the public key itself. One benefit of this approach is that even if the public key hash address is leaked, it will not reveal the recipient's actual public key, thereby increasing security. Additionally, this makes the transaction data on the blockchain more compact, as the public key hash address is relatively short.

In summary, P2PKH is a common, simple Bitcoin transaction type designed to enhance privacy and security while maintaining compact transaction data.

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

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

This introduction was to support more transaction types, such as multi-signature transactions and other complex transaction scripts. In P2SH transactions, the receiving address is a script hash, rather than the actual public key or public key hash. This means that the sender only needs to know the hash value of a script, without needing to know the specific content of the script. Only when spending the output, the actual script matching that hash needs to be provided.

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

Therefore, as a transaction output type, P2SH provides an important foundation for the development and innovation of the Bitcoin network.

Q· Why is it called Bech32?

The name Bech32 comes from the first letter "B" of its designers Pieter Wuille and Greg Maxwell's surnames, and a error detection/fixing algorithm called "ech". This algorithm uses pronunciation rules in some languages to distinguish "1" from "l" and "0" from "o", reducing the likelihood of users entering the wrong address. Therefore, "Bech" represents a key innovation in the address design, while "32" represents the address length of 32 characters. So, the name of the Bech32 address is a descriptive name composed of the key features of its design.

Q· Why does the wallet generate a new address every time when using some BTC wallets?

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

Privacy protection: Using a new address can increase the user's privacy. If a user uses the same address for every transaction, these transactions can be traced back to the same address, exposing the user's transaction history and fund flow. By using a new address, users can better protect their privacy and reduce the leakage of their information to others.

Enhanced security: Regularly changing addresses can reduce attacks on specific addresses. If an address is maliciously tracked and attacked, using a new address can reduce the risk of being attacked. In addition, if a user's private key is exposed, only the funds associated with that private key will be threatened, while funds on other addresses remain secure.

Following best practices: Many security experts recommend regularly changing addresses as a best practice to help maintain the security and privacy of personal funds.

Although generating a new address each time may cause some inconvenience, such as needing to update the receiving address, this practice can enhance the user's level of privacy and security, and is therefore adopted by many Bitcoin wallets.

Q· Shouldn't multiple addresses require changing wallets?

Indeed, generating a new address is typically achieved through the use of Elliptic Curve Cryptography (ECC). The elliptic curve encryption algorithm used in Bitcoin is secp256k1, which is widely used in the cryptocurrency field.

Specifically, the wallet will use the elliptic curve algorithm to generate a pair of keys: a public key and a private key. Then, an address is generated from the public key. Each time a new address is generated, a new pair of public and private keys is created, resulting in a new address.

This method ensures that each address is associated with a unique key pair, thereby enhancing security and privacy. Additionally, due to the efficiency of the elliptic curve encryption algorithm, the process of generating a new address is usually fast.

Q· Isn't that incorrect? Generating multiple addresses?

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

HD Wallet generates a series of key pairs (public and private keys) using a seed, rather than generating a new key pair for each address like traditional wallets. 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 restore all addresses and funds when needed.

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

Better privacy: HD Wallet can generate a new address for each transaction without exposing previously used addresses, enhancing user privacy.

Hierarchical structure: HD Wallet supports a hierarchical structure, allowing the creation of multiple sub-wallets, each with its own seed. This structure helps manage funds for multiple accounts or purposes.

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

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