One of the things I get asked all the time is “what is a bitcoin address?”. There’s the full technical answer for someone who wants to build bitcoin technologies, but there’s a lot less to know to be a user of bitcoin nowadays.
For example, I bet you didn’t know that email runs on a protocol called SMTP (Simple Mail Transfer Protocol) — which plays a similar role in email that the bitcoin protocol does in transferring bitcoin (although with some key differences).
But if I asked you to fire off an email to [email protected] you could have something ready to send in less than a minute. Sending bitcoin is a similar level of complexity, only you don’t need to write a message to send bitcoin.
A lot of people seem to worry about learning the complex mathematics behind the bitcoin protocol before buying and using bitcoin. This might have been true pre-2014 before hoards of startups set out to make bitcoin accessible, but today it’s simply not the case. So I’m going to give you the basic information you need to know to be a user of bitcoin, but not a mathematical expert. So let’s get started!
What is a bitcoin address?
A bitcoin address is one of the key concepts that make the currency and the blockchain work. A bitcoin address is nearly identical to an email address.
It might be easier to learn about two other terms to fully understand the address: the private key and the public key.
- Private key: a string of 64 characters using any combination of the letters A-F and the numbers 1-9. You can see an example of a private key on the image above. This is what you use to prove you are the owner of the address (by generating the public key) and allows you to send bitcoin stored on your address. Therefore, this is what needs to be completely scure.
- Public key: a string of characters that is generated from applying a cryptographic hash function to your private key. This publicly proves to the network that you are the owner of a specific address without actually having to reveal your private key.
- Address: a string of characters that essentially acts as an email address. An address can have many transactions in and out of it. One of Bitcoin’s huge innovations is the UTXO which allows for trustless proof that only one address has a claim on the bitcoin it contains. Addresses and all ofc their activity are public and can be viewed at any time with a block explorer such as on BlockChain.com.
Now that you know the address is public and viewable at any time by anyone, you can see why bitcoin is in fact not this anonymous felon money it was portrayed as in the early days (and still is by some of the old fat cats on Wall Street that still think it could die).
Take a look on the block explorer above and see what kind of data you can pull up. You’ll quickly find that there both is and isn’t a layer of anonymity.
The whole key to it is that you’re completely anonymous until someone attaches your identity to your address. Then the gig is up and everything you’ve ever done is completely public. Any time you withdraw from an exchange, that exchange has recorded your identity attached to that address and all hope of anonymity is gone.
An example of a bitcoin address in action
If we look at the way a bitcoin transaction works we’d be looking at something like this:
Tom uses his private key verify he is the owner of an address than contains 1 bitcoin. He chooses to send 0.1BTC –> Jenny’s address –> Jenny will now have 0.1BTC stored on her address, ready to repeat the cycle and be sent by accessing her wallet (wallets are used to access your “account” on the blockchain aka your address/public key) with the private key to send to someone else’s address when ready.
So to reword that, Tom will use his private key to generate a public key to prove to the network he is the owner of his address and the bitcoin it contains on the blockchain, which he then sends 0.1BTC to Jenny’s address where it will be stored on her address/public key ready to be sent out again.
One last way to reword it:
The address is the equivalent of your email address.
The private key is the equivalent of the password you use to log in to your email account.
The public key is a public proof that you do indeed have the password, without actually showing anyone the password
The wallet is more or less the equivalent of whichever email client you use (mail.google.com, Outlook, Apple Mail, etc)
Check out this post on bitcoin wallets for a breakdown of what a cryptocurrency wallet is and the different types of wallet. Or if you’d rather just go with the easiest secure option to get started, Coinbase is free and with it you can buy, store, send and receive bitcoin as easy as an online bank account. Use that link to get $10 for free when you buy $100 worth of crypto on Coinbase (I’ll get the same).
Are you looking for a starter pack to get into not just bitcoin but the other amazing technologies that crypto is unleashing? If I was starting from scratch, I’d get these three things:
- A free Coinbase account to convert dollars, euros, pounds, etc into the big cryptocurrencies. (We both get $10 of free bitcoin with my referral link below)
- A hardware wallet like the Ledger Nano S – this is the only thing on the list you’ll have to pay for, and it’s the absolute most important. Before I had a hardware wallet I was constantly stressed out storing coins on exchanges and keeping track of private keys and seed words for wallets. It’s insane, and I wouldn’t wish that on my worst enemy. Just suck it up and get one, it’s the only thing you need to buy to have your own bank at home. Best investment ever :).
- The free Google Authenticator app – two-factor authentication dramatically reduces the ability to have someone hijack your accounts.
Does this answer your questions about what is a bitcoin address/public key/private key/wallet? If not, leave a comment below or contact me to let me know how I can improve this page!