Introduction

Bitcoin uses different address formats to receive payments, each with its own benefits and trade-offs. Understanding the various Bitcoin address types is important for users to take advantage of improved security, privacy, and lower transaction fees. In this post, we'll explore the most common address formats along with their characteristics.

Types of Bitcoin Addresses

What is P2PK?

P2PK (Pay-to-Public-Key) was one of the earliest Bitcoin address formats where funds were directly locked to the recipient's public key. To spend these funds, the recipient had to provide a digital signature created with the corresponding private key - similar to a publicly accessible mailbox that only the key holder can unlock. While simple in design, P2PK addresses lacked privacy by exposing users' public keys and were prone to increased transaction sizes. As a result, P2PK was deprecated in favor of the more secure and user-friendly Pay-to-Public-Key-Hash (P2PKH) format, which obfuscates public keys through cryptographic hashing. Nevertheless, P2PK laid the foundational concept of using public-key cryptography to control fund access and inspired more advanced scripting capabilities in Bitcoin.

What is P2PKH?

P2PKH (Pay-to-Public-Key-Hash) is the most common Bitcoin address type historically used to receive payments. Instead of sending funds directly to a recipient's public key, the sender sends to a hashed version of the public key called an "address". This provides additional privacy by obfuscating the recipient's public key and improves usability by using a shorter, more convenient address format. In a P2PKH transaction, the recipient must provide the corresponding public key that hashes to the address, along with a digital signature from the associated private key to spend the funds. While simple and widely adopted, P2PKH lacks some of the efficiency, security, and functionality enhancements of newer address formats like P2WPKH and P2TR. Nevertheless, P2PKH paved the way for abstracting away public keys in favor of user-friendly addresses.

What is P2SH?

P2SH (Pay-to-Script-Hash) addresses provide flexibility by allowing bitcoin to be spent based on satisfying a specified script or set of conditions, rather than just proving ownership of a public key. The sender includes the cryptographic hash of the script required to spend the funds in the transaction output, without needing to know the details of the script itself. The recipient can then construct custom redemption scripts, such as multi-signature requirements or other complex conditions, and spend the funds by revealing the script matching the hash and providing the necessary signatures or data. This enables advanced use cases like multi-sig wallets, while preserving privacy since the specifics of the script are initially hidden. P2SH also enables backwards compatibility, as it was used to deploy SegWit and other protocol upgrades in a soft fork compatible way.

What is P2WPKH?

P2WPKH (Pay-to-Witness-Public-Key-Hash) addresses are the most widely used modern Bitcoin address format, introduced through the SegWit upgrade. Similar to the legacy P2PKH, funds are locked to a cryptographic hash of the recipient's public key. However, P2WPKH leverages SegWit's segregated witness data structure, moving the unlocking signature script to a separate witness field. This segregation results in more efficient transaction sizes, lowering fees while fixing key issues like transaction malleability. P2WPKH addresses also offer improved privacy through the use of Bech32 encoding, enhanced error checking, and enable advanced protocol developments like Lightning Network and Taproot. With its security, efficiency, and forward-compatibility benefits, P2WPKH represents the recommended best practice for receiving Bitcoin payments.

What is P2WSH?

P2WSH (Pay-to-Witness-Script-Hash) is an advanced SegWit address type that allows funds to be locked to a script hash, rather than a public key hash like P2WPKH. This enables complex redemption conditions like multi-signature requirements to be set while taking advantage of SegWit's benefits. To spend P2WSH outputs, the recipient must provide the full redemption script matching the script hash, along with any requisite signatures or data satisfying that script's conditions. By separating this witness data from the core transaction, P2WSH improves efficiency, reduces fees, and bolsters smart contract capabilities on Bitcoin through enhanced scripting functionality. While more complex than regular P2WPKH, P2WSH paves the way for higher scalability and programmability.

What is Nested SegWit (P2SH-P2WPKH and P2SH-P2WSH)?

Nested SegWit addresses like P2SH-P2WPKH and P2SH-P2WSH were introduced as a backwards-compatible way to use SegWit addresses when interacting with older wallets that didn't support SegWit natively. They wrap a SegWit address inside a P2SH address, starting with '3'.

What is P2TR?

P2TR (Pay-to-Taproot) represents Bitcoin's latest and most advanced address format enabled by the Taproot upgrade. P2TR outputs appear as regular payments to a single public key, but can actually be spent via a public key signature or an arbitrary redemption script, with the specifics remaining confidential on-chain. This "MAST" functionality enhances privacy for complex transactions like multi-signatures, while Schnorr signatures allow efficient key aggregation. Additionally, all P2TR addresses look identical regardless of whether they involve single or multi-party setups, obfuscating informative heuristics for blockchain analysts. By combining the capabilities of pay-to-public-key and pay-to-script-hash in a more private and flexible model, P2TR lays the groundwork for more advanced smart contracts and scalability solutions on Bitcoin. As the new standard, P2TR propels Bitcoin toward fungibility, pragmatism, and acting as a better-pristine collateral.

Conclusion

Bitcoin's Address formats have evolved significantly over time, introducing improvements in security, privacy, efficiency, and functionality. While legacy formats like P2PKH are still supported, users are encouraged to adopt modern formats like P2WPKH and P2TR to take advantage of their benefits. Understanding the differences between address types empowers users to make informed choices and fully leverage the capabilities of the Bitcoin network.

About Arch

Arch is building a next-gen wealth management platform for individuals holding Alternative Assets. Our flagship product is the crypto-backed loan, which allows you to securely and affordably borrow against your crypto. We also offer access to bank-grade custody, trading and staking services, powered by BitGo.