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What is an address on the blockchain? 

Did you know that when Bitcoin was created, the payments were made using an IP address? Even though this was an easy way to transfer money, it was removed due to security reasons. A more secure and decentralized way to transfer data on the network was created, called the blockchain address.

In this article, we’ll explain how an address on the blockchain network works, and reveal to you the best practices while sending and receiving transactions.  

What is an address?

A blockchain address is a digital location where crypto can be sent or received. Like in the current banking system, a bank account number serves as a location where you can send and receive your money.

Blockchain addresses have a unique identifier (address) consisting of 26–35 alphanumeric characters. The user must have a private key to send data from one address to another. This key works as a cryptographic code (password) to allow the user to indicate a crypto transaction to another address.  

How a Bitcoin Address Works

To understand how crypto assets are exchanged between users, it is essential to know how the Bitcoin address works. It’s a digital address representing the amount of BTC a user has, and it’s programmed to send and receive cryptocurrency. A Bitcoin address gets generated each time a transaction is made to ensure network security.

Whenever a blockchain wallet is created, it generates a new address with random alphanumeric characters. BTC wallet addresses are generated with hash algorithms (hashes are used in cryptography to create unique strings of text from data) to have a higher security level. The public address is not your wallet address but a hashed format of the wallet address.

BTC addresses generally start with the characters 1,3, or BC1. Here is an example of a BTC wallet address: bc1qxy2kgdygjrsqtzq2n0yrf2493p83kkfjhx0wlh.

The wallet effectively represents Bitcoin public keys and employs asymmetric encryption to derive the private keys from the public keys, which are required to sign Bitcoin transactions. These public-private key pairs eliminate the potential of using someone else’s money. The only way to access and manage the cryptocurrencies of a specific address is with a private key.

Note: You must be careful storing your private keys because the keys give total control over the assets in your wallet. If your keys get stolen, someone can move all your funds to a different wallet. Another thing to keep in mind is that you must make sure the address is the same while moving assets to another wallet’s address because if you send Bitcoin to the wrong address, your coins will be lost, and there is no way to recover them.

Ethereum Address explained

Bitcoin and Ethereum addresses are different. Unlike Bitcoin, the Ethereum address doesn’t change each time a transaction is sent out, and the address is a unique string identified by a hexadecimal string starting with “0x”.

From a technological perspective, an Ethereum address is similar to a Bitcoin address since it comprises a 64-byte public key generated using ECDSA from a private key. However, Ethereum is distinct from other cryptocurrencies because it has no checksum.

Best practices while using a crypto address

  • If you’re new to the crypto space or sending a large amount of money, it’s better to send a small transaction to verify that the address is correct. Always keep in mind the price of the gas fees and try to reduce them
  • Always try to copy and paste the address. This ensures you make fewer mistakes and double-check if the address is correct before sending the transaction. 
  • Check the address format because some don’t work the same across all platforms. You have to check your exchange restrictions for the address. For example, for non-custodial wallets, you can use the same address for ERC-20 tokens and Ethereum, but if it’s a centralized exchange, you may need a specific address to send the assets and include a memo (tag).
  • Always check the transaction fees and reduce them as much as possible. Here is a document you will find helpful in lowering the cost of gas. 

Bottom Line 

Blockchain addresses are created from a public key with a hash algorithm. The address permits the user to have a location on the blockchain that receives and sends currency. Blockchain addresses play an essential role in the development of the network because they store data and can be applied to industries like finance, real estate, insurance, and money transfers to make them more secure, transparent, and less risky.

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