Wallet Address

In blockchain, a wallet address refers to the virtual location of a wallet where users can send and receive funds from others. It acts like a hashed version of a public key whose sole purpose is to locate wallets for crypto transfers.

A crypto wallet address contains a long string of characters representing a wallet—almost as long as 25-30 characters. However, every blockchain has a different address with a varied initial. As a result, if a user inputs the wrong blockchain wallet address, the funds will reach another wallet, making it impossible to recover funds.

A wallet address is a crucial part of a crypto wallet. It enables users to identify and locate a specific wallet for transferring or receiving cryptocurrency. It functions similarly to an email address, allowing others to find and send cryptocurrency to a specific user. To send cryptocurrency, users can copy it from their wallet application or scan a QR code to perform the transaction.

Different blockchain networks have unique addresses. For example, Bitcoin addresses are 25-30 characters long and start with 1, 3, or bc1. Ethereum addresses are 42 characters long and start with 0. TRC20 wallet addresses on the Tron network start with T and consist of 34 bytes. These variations help distinguish wallets across different platforms.

Each transaction generates a unique wallet address, which serves as a public identity for crypto transfers. The wallet algorithm hashes the public key to create the address, which can then be shared with others. However, some networks, like Ethereum, do not produce different addresses for each transaction. There is always a risk of funds being sent to the wrong address, potentially leading to lost funds or exposure to hackers.

There are different types in the digital space. Let us look at them:

• Legacy (P2pkh): It refers to the original crypto addresses assigned to the wallets issued in the Bitcoin blockchain. They have initiated the legacy of these addresses. The P2PKH (pay-to-public key hash) is a hashed version of the public key that starts with 1. However, the usage of legacy addresses has remained relatively highly prevalent. For example, the BitBox02 blockchain does allow crypto transfers to these locations but denies receiving from such addresses. 
• Pay To Script Hash Or Compatibility Addresses: In contrast to the former, the P2SH address does not originate from the public key but from a script. This script introduces certain conditions that limit the spending of crypto tokens. For instance, the receiver can only access funds after a stipulated time. Otherwise, the funds are accessible only when the receiver reveals the secret. These addresses start with '3', which allows fund transfers at a cheaper cost compared to the legacy addresses. As a result, the transaction fees derived are also low. 
• Segwit (Native) Address: These Bitcoin addresses start with 'bc1', which is meant to reduce the information limit. They store signatures or scripts in witnesses (separate storage structures) instead of blocks. As a result, a smaller transaction size reduces the associated fees. Thus, most Bitcoin wallets have adopted the Segwit wallet addresses. 
• Taproot (P2tr): After the Segwit, the blockchain created a Taproot address (starts with 'bc1p') to solve the privacy and scalability issues. It allows multiple transactions to hide behind a single transaction, reducing blockage (overloading). Hence, the transaction fees are also reduced. These addresses are slightly bigger than native ones, created from public keys instead of public key hashes. 

Although the wallet automatically assigns an address to a crypto user, specific indirect steps are involved. Let us look at them:

• Creation Of Private Key: The foremost step for address creation starts with the private key itself. It also serves as a base for public keys. The standard way to create a private key is to select any random characters from integers and pass through the SH26 algorithm (a one-way system to create a key). The algorithm will create a 256-byte (64 characters) long secret key. It can be later used to generate public keys. 
• Generation Of Public Key: The next step is to generate a public key with the private key. The system uses the ellipse curve to determine this key. It also utilizes the formula (P = k*g). Here, k is the private key, and g is the base (or fixed) point already present on the curve. With the multiplication, the resulting answer is the public key. 
• Compress The Public Key: After generating this key, the alternative step is to compress and store it in the Network. Most nodes, by default, perform this action, which saves a lot of space on the blockchain. Once compressed, the wallet can create an address from this compressed key. 
• Generate Wallet Address: As discussed before, there are several types of addresses, but two methods are primarily used for creation. It includes hashing the public key and then encoding the same. However, before encoding the hash, an address format must be followed where it begins with a byte value of 0x00 and ends with a 4-byte checksum. 

Let us look at some examples of wallet addresses to comprehend the concept in a better way:

Example #1 

Suppose Jessy is a pastry chef who also runs a cake shop at the edge of town. She regularly buys materials from Kevin and Katie. This month, she owed them $1500 and $2000, respectively. While making the payment, the suppliers agreed to accept Bitcoin (BTC) instead.

Jessy asked Katie for her Binance wallet address and paid her. In contrast, Kevin provided his QR code for the same. A few hours later, Kevin received 0.054 BTC as payment. However, Katie did not receive her respective amount. Upon inspection, Jessy discovered that she had entered the wrong Binance wallet address. As a result, 0.072 BTC was sent to an unknown wallet. Jessy had to redo the transaction with the correct details to ensure Katie received her payment.

Example #2

According to a news update as of September 2023, the blockchain analytics platform Arkham Intelligence has identified the wallet addresses of the Grayscale Bitcoin Trust. The trust holds over $16 billion in BTC, making it the second-largest Bitcoin entity globally. Out of the five addresses revealed, the first three have $51 million in holdings. However, Grayscale has not confirmed these addresses, citing security concerns.

Although wallet addresses are a combined product of public and private keys, the end product differs. Therefore, let us look at the significant differences of all three components: