The Purpose Codes: 44, 49, 84, and 86

As Bitcoin evolved, new address formats were introduced (SegWit, Taproot). To keep these different address types separate and organized, the "Purpose" level of the derivation path was updated.

1. Purpose 44: Legacy (BIP44)

• Path: m / 44' / 0' / ...

• Address Format: P2PKH (Addresses starting with 1).

• Context: This is the original Bitcoin address format. It is the most compatible but also the most expensive in terms of transaction fees.

2. Purpose 49: Nested SegWit (BIP49)

• Path: m / 49' / 0' / ...

• Address Format: P2SH-P2WPKH (Addresses starting with 3).

• Context: Introduced to provide a bridge between legacy and SegWit. It allows old wallets to send money to SegWit users while still enjoying some fee savings.

3. Purpose 84: Native SegWit (BIP84)

• Path: m / 84' / 0' / ...

• Address Format: Bech32 (P2WPKH) (Addresses starting with bc1q).

• Context: The current standard for most Bitcoin users. It offers the lowest fees for standard transactions and is fully case-insensitive.

4. Purpose 86: Taproot (BIP86)

• Path: m / 86' / 0' / ...

• Address Format: Bech32m (P2TR) (Addresses starting with bc1p).

• Context: The newest standard (activated in 2021). It allows for complex smart contracts and multi-signature transactions while appearing like a standard single-signature address on the blockchain.

5. Why the Separation?

By using a different branch for each purpose code, Bitcoin wallets ensure that you don't accidentally mix your "Legacy" coins with your "SegWit" coins. It also allows you to upgrade your wallet to a new standard without losing access to your old funds.

Purpose	Standard	Address Type	Start Char
44	BIP44	Legacy	1
49	BIP49	Nested SegWit	3
84	BIP84	Native SegWit	bc1q
86	BIP86	Taproot	bc1p

In the next section, we will analyze the Hardened vs. Normal indices.