BTC has undergone many updates since its launch, especially in the implementation of BTC addresses. Nevertheless, these changes still consider backward compatibility. This means that even though new addresses have been implemented, old addresses can still be used. Below are various types of BTC addresses sorted by their launch time:
1. P2PK
I named it Satoshi Address because this model of address appeared for the first time. It is commonly referred to as "Pay-to-public-key" (P2PK). This address is a direct public key generated from the private key.
This is an example of a P2PK address: 04678afdb0fe5548271967f1a67130b7105cd6a828e03909a67962e0ea1f61deb649f6bc3f4cef38c4f35504e51ec112de5c384df7ba0b8d578a4c702b6bf11d5f
2. Legacy
This address is implemented in BIP32, which is also the first time Bitcoin used a method to transfer to a hashed public key. It is called Pay-to-public-key-hash (P2PKH). An example address is: 1JqDybm2nWTENrHvMyafbSXXtTk5Uv5QAn
This update function is for privacy and security reasons. Thus, it does not use the public key directly but uses the hashed public key.
3. Segwit (P2WPKH, P2WSH)
This type of address is slightly more cost-efficient for transactions because nodes separate transaction data and signature data. Thus, block space is slightly more efficient and can accommodate more transactions.
Generally, this type of address uses the prefix bc1q
P2WPKH for common transaction addresses while P2WSH for multisig transaction addresses. The letter W stands for witness. While segwit means Segregated witness.
3. Nested (P2SH)
This address appeared before segwit. Its function is to enable Bitcoin to use scripts. Thus, P2SH means paying to the hashed script. This type of address uses the prefix 3. Like 3P9bKAJc7hPrgMo7D1irGhuxYVRWGmyfga
This type of address does not separate signature data, so transaction costs will be the same as P2PK and P2PKH. However, this type of address marks the beginning of script usage on Bitcoin, allowing for the creation of multisig wallets that add a layer of security for Bitcoin users.
4. Taproot (P2TR)
It can be said that this is a fairly significant update. Because with this, layer 2 (lightning network) can eventually be implemented well. Taproot is a type of address that is the opposite of segwit. Segwit exposes the sending public key on the blockchain during the transaction, while taproot exposes the receiving public key during the transaction.
From a security standpoint, segwit is still better. However, it is the features of taproot that enable LN and encryption to be implemented. But it also sparks long debates about encryption in Bitcoin forums. With the existence of tokens above the BTC network, the BTC network becomes busier but also with fairly high transaction costs.
There is quite a lot that can be done with taproot. Taproot allows multisig to be more efficient. Signing from many inputs and outputs does not require as much data as in segwit. The lightning network also becomes more established with the presence of taproot.
Example taproot address: bc1p.....
5. Silent payment
This address is intended for privacy purposes. The silent payment address uses the prefix sp1....
This address is not displayed on the blockchain. However, on the blockchain, a one-time address that cannot be linked to previous transactions will still be visible. But not as extreme as in Monero. Bitcoin transactions remain transparent and can be traced back.
6. Lightning network
This is no longer just an address. It can even be said to not be an address. Just an invoice. An example prefix is lnbc....
The lightning network is not an on-chain network. LN operates with a 2-of-2 multisig system using taproot addresses. LN also uses the HTLC (hash time lock contract) system. That is why the taproot update has a significant impact on the development of Bitcoin. LN heavily relies on the success of this taproot upgrade.
LN is like an agreement between two wallet owners who promise to pay the difference at the end after calculating all the invoices that have occurred. On-chain, the transactions of these two wallets using multisig will only be seen twice. That is when opening the channel for the first time and lastly when closing the channel. Its implementation is technically quite complicated. However, there are now wallets that support LN providers such as the Phoenix wallet, where you can receive LN balances without having to open a channel first. Your wallet will be tied to the provider's wallet with a 2-of-2 multisig. Technically, the provider cannot take your coins without your signature and vice versa. It can be said to be semi-custodial but not as severe as CEX which is 100% custodial service.
One thing that is quite a concern is that until now, Bitcoin transactions will not occur without exposing one of the two parties involved in the transaction (sender or receiver).
Of all Bitcoin address models, only taproot exposes the public key from the start when receiving funds on-chain. Meanwhile, legacy, segwit, and nested will only be exposed on the blockchain when you send funds. P2PK has been exposed from the beginning because its address is the public key.
It should be noted that quantum computer algorithms can theoretically reverse the public key to the private key in seconds. Although currently still far from realization, the public key remains a special concern in Bitcoin. Various Bitcoin proposals (BIP) have been discussed quite seriously on the mailing list. Several quantum-resistant algorithm candidates have been proposed. Among them are those that can hide the public key of both the sender and the receiver during transactions. However, these algorithms require a lot of data, which will make transaction costs too high and block capacity very large.
Several blockchains focused on privacy have already implemented it. It hides the public key from transaction data on the blockchain. As Zcash does with its ZK proofs. Or in Monero with its RingCT. Or like in ZK-EVM, or like in MWEB on LTC. However, in Bitcoin, the hash result of the public key can only pay to the original public key as in taproot. Or conversely, as in segwit, which can only pay to the hashed public key by showing the original public key.
In the future, there may be a new type of address that allows public key hash pay to public key hash (PKHP2PKH). For example, in Bitcoin proposals (BIP) that are still being discussed. Such as P2QRH (Pay To Quantum Resistance Hash). However, once again, this is still a proposal that has not yet been implemented.