~ Bitcoin Addresses ~
How do they work? Where do they come from? Why do some look different than others?
Thread 👇
How do they work? Where do they come from? Why do some look different than others?
Thread 👇
When bitcoin gets sent, it always gets sent to an Address
You can think of an Address kind of like a Lock
When we say that an Address “has some bitcoin on it”, what we really mean is that a certain amount of bitcoin is locked to that Address
You can think of an Address kind of like a Lock
When we say that an Address “has some bitcoin on it”, what we really mean is that a certain amount of bitcoin is locked to that Address
Like most Locks can only be opened by one key, bitcoin at most Addresses can only be unlocked by one person
But Locks can be more complex, and so can Addresses, sometimes requiring cooperation from multiple people or even knowledge of special secrets, in order to unlock them
But Locks can be more complex, and so can Addresses, sometimes requiring cooperation from multiple people or even knowledge of special secrets, in order to unlock them
Let’s dive into the most basic types of Address
Let’s pretend our friend Alice owns this Address:
1mEBFZ2iGmrDL6GXmrCAM8ZJdg7XVYdCM
Let’s pretend our friend Alice owns this Address:
1mEBFZ2iGmrDL6GXmrCAM8ZJdg7XVYdCM
The “1” at the beginning tells us the “version” of the Address, or the “type of lock”
Addresses that start with a 1 are the most basic and are called "Pay to Public Key Hash" addresses, and require just one signature in order to unlock them
Addresses that start with a 1 are the most basic and are called "Pay to Public Key Hash" addresses, and require just one signature in order to unlock them
These are called “Pay to Public Key Hash” ("P2PKH") addresses because most of the rest of that data in the Address is a Hash of Alice’s Public Key
For some background on what Public Keys and Signatures are, I'd suggest checking out my previous thread:
For some background on what Public Keys and Signatures are, I'd suggest checking out my previous thread:
For background on what a Hash is, check out this one:
You might be wondering why the address has the Hash of Alice’s Public Key, and not just the actual Public Key
Good question
Good question
In fact, original bitcoin addresses were exactly that - “Pay to Public Key” (without the hash)
It wasn’t until a little later that they realized hashing the public key provides some additional security benefits that make it more future-proof, so "P2PKH" became the standard
It wasn’t until a little later that they realized hashing the public key provides some additional security benefits that make it more future-proof, so "P2PKH" became the standard
So we have this Address that has the Hash of Alice’s Public Key in it
How does Alice spend from this Address?
To send a transaction, she needs to produce 2 things:
- Her actual Public Key
- A Signature of the spending transaction's data (signed by her Private Key)
How does Alice spend from this Address?
To send a transaction, she needs to produce 2 things:
- Her actual Public Key
- A Signature of the spending transaction's data (signed by her Private Key)
When Alice produces this data, she will attach it to her Transaction
Then all the Nodes’ software in the bitcoin network will check to make sure its valid
Then all the Nodes’ software in the bitcoin network will check to make sure its valid
They will check:
- Does hashing the Public Key she provided equal the Hash thats in the Address?
- Is the Signature valid for that Public Key?
- Does hashing the Public Key she provided equal the Hash thats in the Address?
- Is the Signature valid for that Public Key?
If these are both true, then Alice’s transaction will be accepted
She will have successfully “unlocked” her Address and spent from it!
She will have successfully “unlocked” her Address and spent from it!
Great so we’ve covered the most basic type of Address version: “Pay to Public Key Hash”, that starts with a "1"
What about the other ones?
The next type are addresses that start with a "3", like this one:
32XsF8Ge2goSWiHKfwakMwQXTHawehzoFV
What about the other ones?
The next type are addresses that start with a "3", like this one:
32XsF8Ge2goSWiHKfwakMwQXTHawehzoFV
This is called a “Pay to Script Hash” address, and it allows for really awesome complex spending conditions
It gets it’s name because the data encodes a Hash of a computer Script. Thats right - a miniature computer program!
It gets it’s name because the data encodes a Hash of a computer Script. Thats right - a miniature computer program!
If Alice wants to spend from one of these Addresses, the following needs to happen:
- She must produce the actual Script that hashes to the data in the Address
- She must produce any signatures or other secret information that the Script requires
- She must produce the actual Script that hashes to the data in the Address
- She must produce any signatures or other secret information that the Script requires
When a bitcoin Node gets this data along with the transaction, they will run the computer program Alice provides along with the Signatures / Secrets she includes
The program must evaluate to True in order for the transaction to be valid
The program must evaluate to True in order for the transaction to be valid
That may sound a little bit vague, but it’s because these types of Addresses can encode all types of fancy Scripts
The most common one is a "Multi-Signature" script, which requires Signatures from multiple different parties in order to Spend
The most common one is a "Multi-Signature" script, which requires Signatures from multiple different parties in order to Spend
Other types of Scripts can include Timelocks (Bitcoin locked for a certain amount of time) and many more possibilities, which I can cover in other threads
Finally, you may have also seen addresses that look like this:
bc1qwqdg6squsna38e46795at95yu9atm8azzmyvckulcc7kytlcckxswvvzej
These, which start with "bc" are called “Segregated Witness” addresses, and they have similar functionality to the previous ones I described
bc1qwqdg6squsna38e46795at95yu9atm8azzmyvckulcc7kytlcckxswvvzej
These, which start with "bc" are called “Segregated Witness” addresses, and they have similar functionality to the previous ones I described
The special thing about “Segwit” addresses is that they save money on Fees
When you spend from them, you don’t get charged for the Signature data (remember in bitcoin you pay for data!)
When you spend from them, you don’t get charged for the Signature data (remember in bitcoin you pay for data!)
So to recap, we covered 3 types of addresses:
- Pay to Public Key Hash ("P2PKH") (1 key required)
- Pay to Script Hash ("P2SH") (Mini computer script required)
- Segregated Witness ("Segwit") (Same possibilities as above, but save money on fees)
- Pay to Public Key Hash ("P2PKH") (1 key required)
- Pay to Script Hash ("P2SH") (Mini computer script required)
- Segregated Witness ("Segwit") (Same possibilities as above, but save money on fees)
Those are the basics of Bitcoin Addresses!
We can dive deeper in further threads, but I'll end it here
Let me know your questions in the comments!
We can dive deeper in further threads, but I'll end it here
Let me know your questions in the comments!
All of my previous threads are linked here:
@threadreaderapp unroll
Update, this thread had a small mistake, caught by @pwuille:
P2PKH addresses *were* part of bitcoin from the beginning
P2PK was used as well, but only indirectly
See comments for the details :)
P2PKH addresses *were* part of bitcoin from the beginning
P2PK was used as well, but only indirectly
See comments for the details :)
In response to the incorrect statement I made that P2PKH addresses were added after P2PK:
