Gareth Johnson
Gareth Johnson
Updated on September 19, 2021

Bitcoin transactions are the most popular daily operations for BTC traders and investors. Each time you want to send a Bitcoin payment for a service or you’re receiving some BTC you bought or exchanged on a crypto exchange platform, you are conducting a transaction. 

Since Bitcoin only exists on its native blockchain network, to receive and safely store BTC, you need a virtual location on the blockchain. These virtual locations are called Bitcoin addresses and they are used as destinations to which other parties can send you Bitcoin, and they are also your storage space on the blockchain, secured by a Bitcoin wallet. Bitcoin addresses are also referred to as Bitcoin wallet addresses.

Let’s take a look at how BTC addresses work and what types of them exist. 

What Is a Bitcoin Address?

Bitcoin addresses basically identify a sender and a receiver – the sender sends Bitcoin from their BTC address while the receiver accepts Bitcoin to their address. This is the only possible way for facilitating Bitcoin transactions on the blockchain since you can’t store bitcoins in your real-world wallet or in your bank account.

Each time you want to receive some BTC, you have to generate a new Bitcoin address with the help of your cryptocurrency wallet and then you have to share that address with the sender. In case you are the sender, you need to have the receiver’s BTC address and your private address, which is also called a private key

Bitcoin held with two fingers on white background

Private keys act as a sort of authentication sequence that proves your ownership over a certain amount of BTC on the blockchain. With the help of your private key, you can manage your bitcoins and send them or spend them as you wish.

Public keys and private keys use asymmetric encryption, which makes it possible to reveal the public key with a private key, but you can’t expose a private key if you only have someone’s public key. 

Bitcoin addresses have the length of 26 to 35 alphanumeric characters (a mix of numbers and letters) and they can be transformed into scannable QR codes for more practical use. 

One important thing to note here – you can’t memorize a BTC address because of the high number of randomized characters and it’s crucial that you don’t make a mistake when sending or receiving BTC, because if you mistake just one character, the funds will be lost. 

BTC addresses can start with the numbers 3, 1, or with bc1, which are codes that indicate the destinations of the transaction.

Types of Bitcoin Addresses

There are different types of BTC addresses and not all of them are supported by all types of crypto wallets. These are the three types of BTC addresses used for transactions on the blockchain: 

  • Bech32, 
  • Pay to script hash 
  • Pay-to-Pubkey-Hash. 

BEch32 Address

BEch32 Bitcoin addresses are the longest type of BTC addresses and they are supported by a smaller number of crypto exchange platforms and wallets than the other two address types. These addresses enable SegWit transfers, which work perfectly with low fees, but you need to be careful and find out in advance if your wallet or exchange platform supports this type of BTC address.

They begin with a Bc1 and look like: Bc1qar0srmr7xfivy5l643lbdnw9re59gtzzwf5mdq

P2PKH Address

P2PKH means Pay-to-Public key-Hash address. These types of addresses signify the process of paying funds to the public address hash of the receiver. This is the first-ever format of Bitcoin addresses, the original BTC address format.

These addresses always start with the number 1, like: 1bvbmseystwetqtfn5au4m4gfg7xjanvn2

A P2PKH address is compatible with a BEch32 address but it isn’t compatible with a P2SH address. P2PKH addresses also require higher transaction fees because these addresses make BTC transfers more robust, thus requiring more data and more hashing power to process.

P2SH Address

P2SH means Pay-to-script-hash. This address type has a similar form to P2PKH addresses. Instead of a number 1, they start with a number 3 like:

3j98t1wpez73cnmqviecrnyiwrnqrhwnly

These BTC addresses support the SegWit protocol and automatically decrease the amount of data in Bitcoin transactions. The fact that the address reduces the transaction size means that it also lowers the transfer fees. A P2SH address is compatible with both of the other two BTC address formats.

How to Get a Bitcoin Address?

It’s quite easy to get a Bitcoin address. You just need to have a cryptocurrency wallet that supports Bitcoin and generate a BTC address with the help of your wallet. 

Before you can facilitate a successful transaction of bitcoins, you need to have a BTC address. In case you are the sender, you need to have a BTC address where you’re storing the coins you want to send and in case you’re the receiver, you need to have an address to where other people can send you coins.

Hot Storage

Hot storage or so-called hot wallets are all Bitcoin wallets that are software-based and have a constant connection to the internet. There are several types of hot wallets. Desktop wallets need to be installed on a laptop or on a PC and they store your private keys on your computer. Web wallets are accessed through a browser and they usually keep private keys on company servers, while mobile wallets are Android and iOS compatible phone apps that keep your private keys on your smartphone. 

Vector illustration of brown wallet with gold bitcoins floating on top on blue background

All of these wallet options are quite secure and the wallet providers generate Bitcoin addresses for each transaction. Popular cryptocurrency exchange platforms such as Coinbase, Kraken or Gemini also have integrated wallet services that generate BTC addresses when you want to send or receive some bitcoins.

Cold Storage

Cold storage or cold wallets are cryptocurrency wallets that aren’t connected to the internet and they come in two forms. 

Paper wallets are essentially pieces of paper with printed QR codes for private keys and public Bitcoin addresses, while hardware wallets are specialized USB devices with top-of-the-line encryption for storing cryptocurrency offline

Trezor and Ledger are some of the most reliable hardware wallets on the market and they support BTC along with numerous altcoins such as Ethereum (ETH), Litecoin (LTC), and other cryptos.

A Few Final Words…

Ever since Satoshi Nakamoto launched BTC in 2009, its popularity has constantly been rising, along with the coin’s value. Knowing all the characteristics of the technology behind the Bitcoin network is a must for crypto enthusiasts and experienced bitcoin brokers alike. 

Bitcoin addresses are a vital part of the transaction process on the Bitcoin blockchain, so it’s quite important to know which types of addresses exist and how to recognize them.