Bitcoin Wallet: Understanding Addresses and How They Work

What is a bitcoin wallet and its address?

A bitcoin wallet operates like your personal account on the Bitcoin network. Each wallet generates unique addresses, that is, specific strings of letters and numbers that act as identifiers to send and receive BTC. Think of these addresses as digital bank account numbers: necessary for any transaction, but publicly visible without exposing your real identity.

The Bitcoin wallet address operates under a dual principle: while everyone can see where your coins are going, only those who possess the corresponding private key can control those funds. This combination of transparency and security is at the heart of Bitcoin's design.

A fascinating detail: the most famous address in history is 1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa, which belongs to Satoshi Nakamoto. This address contains 50 BTC from the Genesis Block, mined on January 3, 2009, and has never been moved.

The three main formats of bitcoin addresses

Over the years, Bitcoin has evolved towards more efficient directions. There are three types you should know about:

Inherited addresses (P2PKH) - The original standard that started it all:

• They start with the number “1”
• Format: 1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa
• Advantage: widely compatible
• Disadvantage: they generate higher fees due to their heavier structure

SegWit Addresses (P2SH) - The intermediate upgrade:

• They start with “3”
• Format: 3J98t1WpEZ73CNmQviecrnyiWrnqRhWNLy
• Introduced to optimize transactions using Segregated Witness
• They significantly reduce fees compared to P2PKH

Bech32 Addresses (Native SegWit) - The modern standard:

• They start with “bc1”
• Format: bc1qwes635e7dl0dxzlc2q044arj5h0e6n4z06pl4a
• More efficient and compact
• Designed for the latest protocol updates

How to obtain your own address?

To access a bitcoin wallet address, the first step is to create a wallet. Available options include:

• Hardware: physical devices like Ledger or Trezor that protect your BTC offline
• Software: applications installed on computer or mobile
• Online: web services accessible from any browser

Once you have created your cryptocurrency wallet, the system automatically generates one or more addresses. Most allow you to generate unlimited addresses, a useful practice for compartmentalizing transactions or enhancing privacy.

Transfers between different types of addresses

The good news: Bitcoin is backward compatible. You can transfer funds from a P2PKH address to SegWit or Bech32 without technical issues.

However, some practical considerations deserve attention:

• Commissions: sending from P2PKH addresses costs more than from Bech32
• Old wallets: some outdated software may not recognize Bech32
• Exchange platforms: make sure your exchange accepts deposits in the format you plan to use
• Access to the receiving wallet: if it's yours, make sure to have the private key or recovery phrase.

Durability and Reusability of Addresses

Bitcoin wallet addresses do not expire. An address generated years ago remains valid and functional. Technically, you can reuse it indefinitely.

However, the privacy community recommends generating a new address for each transaction. This practice makes it difficult to track the complete history of your activity on the blockchain. Many modern wallets do this automatically for you.

Protecting What Matters

Your address is public and shareable without risk. The real gem that you must keep under seven keys is your private key. Whoever has access to it controls your funds irreversibly. The address is your mailbox; the private key is the master key to your vault.

Understanding the structure of Bitcoin addresses and their different formats prepares you to navigate this ecosystem with greater confidence and efficiency. Each type has its utility depending on your cost, compatibility, and privacy needs.