What is a bitcoin address and how do you create one?
Are you curious about what a Bitcoin address is? In this article, I will explain what a Bitcoin address is and how you can create one yourself!
In short: Bitcoin address
- You can send and receive cryptocurrencies like bitcoins to a Bitcoin address
- You can receive a Bitcoin address by creating a wallet.
- For every transaction, you can create a new address, and your private key secures your transaction
- You can use mobile, web, desktop, and hardware wallets
What is a Bitcoin address?
A Bitcoin address is similar to your bank account number. You can use your address to receive bitcoins.
For example, if you want to send bitcoins to your friend, you need to know your friend’s address, and with a few clicks, you can send bitcoins to them.
You can create a Bitcoin address yourself by creating a wallet. There are different types of wallets that allow you to create a Bitcoin address.
What types of wallets & Bitcoin addresses exist?
When using a Bitcoin address, you need a Bitcoin wallet. In this part of the article, I will discuss the different types of wallets, sorted from the least secure to the most secure.
Online wallet
With an online wallet, you have access to your crypto everywhere. You can quickly and easily log in to your wallet via your browser.
A big disadvantage of a web wallet is that you store your private keys online. Coinbase and Binance are popular providers of web wallets.
These platforms have been hacked in the past, causing you to lose all of your stored bitcoins. Recently, users of FTX lost their crypto balances because the exchange secretly used the crypto coins for speculation.
If you do choose an online wallet, it is important to choose a strong password. It is also recommended to enable 2FA.
Desktop wallets
Desktop wallets are installed on a computer. Some well-known desktop wallets are Bitcoin Core, MultiBit, Armory, Hive OS X, and Electrum.
With a desktop wallet, it is possible to send your Bitcoins in a secure manner. One small disadvantage is that desktop wallets are connected to the internet, which can make them vulnerable to hackers trying to steal your Bitcoin.
Mobile wallets
Mobile wallets serve the same functions as desktop wallets and simplify payments in physical stores through “touch-to-pay” and scanning a QR code.
Bitcoin Wallet, Hive Android, and Mycelium Bitcoin Wallet are examples of good mobile wallets.
There is a lot of malware posing as a Bitcoin wallet, so it’s important to research the application you’re installing to ensure it’s trustworthy if you choose a mobile wallet.
Hardware wallets
Hardware wallets are by far the safest wallets, as they are physical and not constantly connected to the internet. A hardware wallet looks like a USB stick. They are practically immune to virus attacks, and there are few risks associated with using these wallets.
These devices are the only Bitcoin wallets that are not free: you’ll need to spend about 100 euros for a good hardware wallet. Well-known providers offering hardware wallets include Trezor and Ledger.
Which type of wallet should you use?
When choosing a wallet, you can take the following into account:
- Usage: do you want to actively trade or just use the wallet for storage?
- Backup: are there ways to access your funds if you lose your key?
- Security level: is it difficult for hackers to gain access to the wallet?
What does a Bitcoin address look like and how does it work?
The address itself consists of 26-35 alphanumeric characters. This string is the public half of an asymmetric key pair, which is a combination of private and public keys.
An example of a Bitcoin address is: 1BvBMSEYsrWetqTFn5Au5m4GFg7xJaNVN2’
You use the public key to receive Bitcoin, for example. You should never share your private key with others, as they can access your crypto funds that way!
Some Bitcoin addresses start with a 3 and look like this: 38ccq12hPFoiSksxUdr6SQ5VosyjY7s9AU. This type of address is shared by multiple people or parties. In this case, permission from multiple parties is required to send bitcoins, often achieved by using a unique PIN code or password.
How does a Bitcoin wallet work?
The Bitcoin address is closely linked to the underlying Bitcoin wallet. Bitcoin wallets enable the sending and receiving of cryptocurrency by adhering to the Bitcoin protocol.
These wallets are complex software programs that allow people with little to no technical knowledge to perform transactions.
All Bitcoin exists on the blockchain. Additionally, you don’t really own a Bitcoin per se. Instead, you own the combination of keys that enable you to access and move the Bitcoin. The Bitcoin you buy is safe as long as you store your keys properly.
Wallets contain at least one corresponding private key and a public key. So it’s the combination of the private key(s) and the public key that make a Bitcoin wallet. Both keys are important to access and trade your Bitcoin.
Is your Bitcoin address anonymous?
Your Bitcoin address is never completely anonymous since they can all be traced back to the blockchain. However, it’s difficult for someone to directly connect the address with you.
Crypto exchanges often need to keep track of the Bitcoin addresses you use. However, many exchanges are located abroad, making it difficult for governments to keep a good overview.
You can better safeguard your anonymity by using a different Bitcoin address each time you receive crypto. With one private key, you can create thousands of public keys.
Types of Bitcoin Addresses – P2PKH and P2SH
There are three different types of Bitcoin addresses: Pay-to-PubKey-Hash (P2PKH, also known as Legacy address), Pay to script hash (P2SH), and Bech32. Not all wallets support all three address formats.
P2PKH Addresses
P2PKH addresses are the original Bitcoin address format. This is why they are also known as Legacy addresses. They begin with the number 1 and are always case-sensitive.
All wallets should support legacy addresses. This means that you should be able to receive Bitcoins sent from a Segwit address to a legacy address.
Generally, these are the most convenient addresses to use. The total costs associated with the transaction are generally higher for P2PKH addresses. Now that these addresses can be used with all wallets, you don’t have to worry about incompatibility.
P2SH Addresses
Pay to script hash (P2SH) addresses have a similar structure to P2PKH addresses, but begin with a 3 instead of a 1. The format was introduced to support the SegWit update of the Bitcoin protocol. This is a protocol that allowed the signature data of Bitcoin transactions to be removed.
This meant that the transaction data that had to be stored in Bitcoin blocks became smaller. The result of this is that transactions that run via this update can be processed much faster than normal transactions. This makes transactions to P2SH addresses cheaper.
How can you send & receive Bitcoin to a Bitcoin address?
After reading this article, you may be a little overwhelmed by all the technical terms. Fortunately, you don’t need to understand the technology behind Bitcoin addresses to successfully perform transactions.
I always recommend that new users experiment with small transactions. For example, agree with a friend to transfer a small amount of crypto. This way, you can learn how sending and receiving Bitcoins works with low risk.
