Bitcoin Addresses: The Payment Identifier

A Bitcoin Address is a human-readable string of characters that represents a destination for funds. While users see these strings in their wallets, the network sees them as encoded instructions for how to lock and unlock Bitcoin.

1. The Mapping

An address is not "the" key. It is an Encoded Representation of a Public Key Hash or a Script Hash.

• Input: 20-byte HASH160.

• Transformation: Add a version byte, add a checksum, and convert to a readable character set.

• Output: An address like 1BvBMSEYstWetqTFn5Au4m4GFg7xJaNVN2.

2. Why Encode?

Why don't we just use the raw hex hash?

• Human Error: Hex strings are long and easy to mistype.

• Formatting: Encoding allows us to add "Prefixes" (like 1, 3, or bc1) that tell the wallet what kind of script to create.

• Checksums: Encoding standards include mathematical checks. If you mistype a single character, the wallet will flag the address as "Invalid" instead of sending your money into a void.

3. The Evolution of Formats

As Bitcoin evolved, so did its address standards.

1. Base58Check (Legacy): Used for P2PKH and P2SH.

2. Bech32 (SegWit): Introduced with SegWit for "Native" addresses.

3. Bech32m (Taproot): The latest standard for Taproot and future upgrades.

4. One-Way Derivation

The derivation of an address is a one-way street. $$PrivateKey \rightarrow PublicKey \rightarrow HASH160 \rightarrow Address$$ You can calculate an address from a private key, but you can NEVER calculate a private key from an address.

Type	Starts With	Encoding	Purpose
Legacy	1	Base58Check	Standard Payments
Nested SegWit	3	Base58Check	Multisig / Compatibility
Native SegWit	bc1q	Bech32	Lowest Fees
Taproot	bc1p	Bech32m	Advanced Privacy

In the next section, we will deep dive into the original Base58Check standard.