A Bitcoin address is a cornerstone to understand how the cryptocurrency is exchanged between two individuals as they essentially dictate the source and destination for a particular amount of bitcoin. For those new to the world of cryptocurrencies, a bitcoin address may seem a little confusing at first.
Unlike a conventional bank account number, these addresses can include both numbers as well as letters and be up to 35 characters in length. In practice though, most addresses tend to be 33 or 34 characters long.
Here’s what one looks like:
A popular misconception among new users is that a Bitcoin address resembles an email address. While each user is indeed assigned a unique string of characters similar to the way an email account works, there is no freedom or flexibility in what characters make up the address itself.
Personalization of these complex alphanumeric characters is extremely limited for the sole reason that the entire system is designed to be as random as possible.
A Bitcoin address is used to identify who the owner of a particular amount of bitcoin is. When a new Bitcoin wallet is created using a piece of software, an address is also randomly generated.
Put simply, an address is a group of arbitrary digits and letters that represent a given user’s Bitcoin balance. The owner of a wallet can also choose to send or receive bitcoin to other users as many times as they like, using their own address as the source.
If you have already set up a bitcoin wallet, your receiving address will be pretty easy to find. While the exact steps to find it heavily depends on what Bitcoin software you use, most wallets will have a “Receive” section with the address clearly visible and ready to be copied.
How Do You Make Transactions Using the Bitcoin Address?
Firstly, you will need to give people this address every time they need to send you a payment through Bitcoin. So, it’s probably a good idea to keep it in a place that’s easily accessible.
As an example of what a bitcoin address looks like, here’s the one that The Bitcoin Foundation accepts donations through: 3Mrdyvm4Dnc4Dii4xDpEtbTsQTEUbZiQQs. In order to send any amount of bitcoin directly to such an address, you will have to copy it into your wallet software’s “Send” section.
Once all the other fields have been filled out, including the transaction amount, you will be able to initiate the process from your end. And just like that, with only the recipient’s address, you have successfully sent them a particular amount of Bitcoin from your wallet minus some transaction fees.
Since Bitcoin addresses are generally too long and quite hard to memorize for most people, QR codes have become a relatively popular method to share them. A long string of alphanumeric characters may appear daunting to someone unfamiliar with Bitcoin, but if the same thing is presented in the form of a barcode instead, they are much more likely to understand how the system works.
In fact, considering how easy it is to commit an error while manually entering a bitcoin address, this method is almost universally preferred.
How Secure Are Bitcoin Transactions?
Without delving into the technical aspect of how a bitcoin address is actually generated, it’s important to note that at the time of generation of a wallet, two keys are created. The naming scheme for these keys is rather straightforward, with one referred to as a public key and the other, a private key.
A Bitcoin address is essentially another form of the generated public key and therefore, can be distributed or advertised anywhere without the risk of losing your bitcoin. The private key, on the other hand, gives anyone full control over the Bitcoin stored on the address. In this way, ownership of the public-private key pair together is all anyone needs to rebuild a wallet from scratch.
If your private key is leaked, a malicious individual could transfer all Bitcoin residing in that wallet to his own address. That is why, a private key should be treated with no less caution than a traditional, physical wallet itself.
Unless you use a desktop or hardware wallet, there is very little chance that you have ever had access to your private key. Online Bitcoin wallet services, including those offered by exchanges such as Coinbase and Kraken, tend to give users only a receiving, public address. Due to the security implications of a user misplacing their wallet’s private keys, it’s easy to see why wallet services restrict their users from accessing them.
On another note, it’s also pertinent to note that since all bitcoin transactions are logged onto the public blockchain, anyone with your receiving address could also track the amount of money entering and leaving your wallet. To combat this, some wallet services have begun offering the option of changing your address after every transaction or a fixed amount of time.
Given that privacy and anonymity are one of the fundamental principles of the Bitcoin Network, using a wallet that changes the receiving address is often very useful.
In fact, some other cryptocurrencies have been specifically designed around this feature, with privacy-focused Monero being the most popular example. But, the privacy game is so strong that it’s rumored that terrorist groups and secret organizations are exploiting the technology in carrying out transactions of illegal stuff but that’s not our cup of tea.
Alright! So, I hope this guide has helped you understand how Bitcoin addresses function. If you still have doubts, feel free to ask in the comment section below.
Feature image by Jonathan Shobook