How the Bitcoin address works: Complete guide to BTC wallet formats

The three Bitcoin address formats you need to know

Before understanding what a Bitcoin address is, it is useful to know that there are three main types, each with specific characteristics:

Legacy Format (P2PKH): the original design introduced since the early days of Bitcoin. These addresses start with the number “1” and still represent the most widely accepted standard by platforms. An example of a bitcoin address of this type is 1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa, which interestingly is the address of the Genesis Block containing the 50 BTC mined on January 3, 2009 by Satoshi Nakamoto. However, this format incurs higher transaction fees and lower speeds.

SegWit Address (P2SH): introduced to optimize operations on the blockchain, it uses Segregated Witness technology. Identifiable by the prefix “3”, these addresses significantly reduce fees. An example is 3J98t1WpEZ73CNmQviecrnyiWrnqRhWNLy.

Bech32 Format (Native SegWit ): the most modern solution, starting with “bc1”. It represents the peak of technical efficiency and security, with more compact addresses like bc1qwes635e7dl0dxzlc2q044arj5h0e6n4z06pl4a.

What does a Bitcoin wallet address really represent?

A Bitcoin address is essentially an encoded public key, a unique alphanumeric string that functions as a receiving point on the network. If we compare the Bitcoin system to email, the wallet address is the equivalent of your email address: anyone can send you a message, but only you possess the private key to access and manage the contents.

The fundamental characteristic is that while the address is public and shareable, it remains pseudonymous because it is not directly linked to the user's name. This separation between identity and address provides a level of privacy, although transactions remain traceable on the blockchain.

Compatibility between formats: can you transfer Bitcoin between different addresses?

Yes, the Bitcoin network is designed to handle smooth transfers between all three formats. You can send BTC from a Legacy address to a SegWit or Bech32 without any issues, thanks to the backward compatibility built into the protocol.

However, some factors deserve attention:

• Operating Costs: transactions from Legacy addresses incur higher fees, as newer formats are optimized to reduce space and resource consumption on the blockchain.

• Software updates: some older wallets may have limitations in supporting Bech32 addresses, making it advisable to ensure that your client is always up to date.

• Exchange Policies: different cryptocurrency exchanges have restrictions on what types of addresses they accept for deposits and withdrawals, so it is important to check the available options.

• Private key control: if you are transferring to a wallet that you own, make sure you have both the seed phrase and the private key for the recipient wallet.

How to obtain your first BTC wallet address

To start using Bitcoin, the first step is to select a wallet tool. The main options are:

Hardware wallets like Ledger and Trezor keep BTC offline on dedicated physical devices, representing the safest solution for those holding significant amounts.

Software wallets are applications that can be installed on computers or smartphones that manage cryptocurrency locally.

Online services allow access via browser, ensuring ease of use at the cost of potentially lower security.

Once you have chosen and configured the wallet, the system will automatically generate one or more BTC wallet addresses. Most modern wallets allow you to create new ones whenever you wish, a useful practice for compartmentalizing transactions and increasing privacy levels.

Duration and Reuse of the Bitcoin Wallet Address

An important aspect: Bitcoin addresses never expire. You can use the same address for years without technical consequences.

That said, common practice in the industry suggests generating a new address for each incoming transaction. This approach significantly enhances privacy as it makes it more difficult to trace all your movements on the blockchain. Many modern wallets automate this process, generating fresh addresses by default.

Security remains in your hands

A Bitcoin wallet address is the tool that allows you to interact with the network in a transparent and secure way. Understanding the different available formats and choosing the one that best suits your specific needs is the foundation of a mindful Bitcoin experience.

The crucial point to remember: while the address can be shared freely, the private key must remain under your exclusive custody. It is the only element that actually controls your assets, making its protection the top priority for any Bitcoin user.