The Evolution of Bitcoin Address Types: A Comprehensive Guide
If you’ve been using bitcoin for a while, you’ve probably noticed that some bitcoin addresses appear quite different from others. You may have also seen discussion around several acronyms beginning with “P2,” such as P2PKH or P2WSH. If you’re unfamiliar with what these acronyms mean, here we’ll look through all the standardized on-chain methods for receiving bitcoin throughout its history and explain some essential differences that make each method unique.
Pay-to-Public-Key (P2PK) is the original method of receiving bitcoin, and it does not involve an address. Instead, bitcoin is paid directly to an exposed public key. P2PK is no longer used due to its higher cost, lower privacy, and security issues.
Pay-to-Public-Key-Hash (P2PKH) was available at bitcoin’s beginning and utilizes an address containing a checksum to prevent errors. P2PKH addresses are responsible for securing a significant portion of the mined bitcoin supply.
Pay-to-Multisig (P2MS) was a short-lived transaction type that limited the number of public keys in a multisig quorum. It was quickly replaced by Pay-to-Script-Hash (P2SH), which introduced a more secure way to create multisig wallets.
Pay-to-Script-Hash (P2SH) was introduced as a soft fork in 2012 and allows for the creation of complex scripts, including multisig wallets. P2SH addresses begin with a prefix of 3 and are used for Nested SegWit addresses.
Pay-to-Witness-Public-Key-Hash (P2WPKH) is a SegWit address type introduced in 2017 that helps reduce transaction fees. P2WPKH addresses use Bech32 encoding and have a prefix of bc1q.
Pay-to-Witness-Script-Hash (P2WSH) is the SegWit variant of P2SH and is used for multisig arrangements. P2WSH addresses begin with a prefix of bc1q and have a longer character length than other address types.
Nested SegWit (P2SH-P2WPKH and P2SH-P2WSH) is a way to use SegWit address types in a manner that was temporarily useful for the bitcoin community. It played a significant role in the SegWit adoption process but is no longer necessary.
Pay-to-Taproot (P2TR) is the newest address type introduced in 2021 with the Taproot soft fork. P2TR addresses use Schnorr signatures for increased privacy and reduced transaction fees.
As the evolution of bitcoin address types continues, it is essential for users to understand the differences between each method to ensure the security and efficiency of their transactions. For more information on bitcoin custody and related services, visit Unchained, the official US Collaborative Custody partner of Bitcoin Magazine.
