Cryptocurrencies are quickly becoming a favourite investment option for more and more individuals and institutions alike. Crypto enthusiasts across the globe are constantly trying to acquire different types of cryptocurrencies. Among these, Bitcoin (BTC) is by far the most popular one if we judge by its market capitalization — and also the very first cryptocurrency to be launched, which has undoubtedly had an effect on its surge in popularity. 

If you are interested in Bitcoin trading or have already started learning the ropes, you’re likely to have heard of the concept of a Bitcoin address. BTC addresses (also known as BTC identifiers) are crucial to understanding how Bitcoin is exchanged and traded. Therefore, read on to find out about the importance of Bitcoin addresses in BTC trading.

Silver bitcoin on red background

Understanding Bitcoin Wallet Addresses

A Bitcoin address is a string of random letters and numbers that represents a certain amount of cryptocurrency that a given user owns. Using their own address as the source, the Bitcoin wallet holder can both send and receive an unlimited amount of cryptocurrency from other users. 

Bitcoin addresses function somewhat similarly to bank account numbers. The main difference between the two — at least in terms of the address format — is that Bitcoin addresses can consist of a maximum of 35 characters (although they’re mostly made up of either 33 or 34), and they can include both letters and digits. 

Bitcoin addresses are created to be as arbitrary as possible, with an extreme limitation on their customisation. In other words, you don’t have the freedom to choose the characters that make up your Bitcoin address or their order within the address.

Finding the Address of Your Bitcoin Wallet

Bitcoin addresses serve to identify the holder of a certain quantity of Bitcoin. Whenever someone creates a software wallet for Bitcoin, a random address is generated along with the wallet. 

Once you set up your Bitcoin wallet, finding the receiving address within it is fairly simple, although the way to find it depends a lot on the wallet software you’re using. In any case, the vast majority of wallets usually contain a “Receive” component, where the address can be easily identified and copied for use. 

How to Use Your Address for Bitcoin Transactions

If you want to buy bitcoins, you’ll have to have your Bitcoin address at hand and ready to be given to anyone that needs to send you a BTC payment. Therefore, it’s best that you keep your BTC address where you can access it easily.

If you want to send Bitcoin to someone else, and have their address, copy the address to the “Send” section of your BTC wallet. After filling in all the required fields, including the amount you’re sending, you can commence the process. Using only the recipient’s address, you can send a specific quantity of Bitcoin from your BTC wallet balance to that of the recepient — and, as a rule, you’ll also be charged a transaction fee in the process.

Bitcoin addresses are very long are not easy to memorize by heart. Therefore, an alternative way of sharing them is by using a QR code. This method has become quite popular among many users. Beginner traders may find it difficult to use Bitcoin addresses regularly because of the long thread of alphanumeric characters they’re made of. Any Android or iOS mobile device which has a Bitcoin wallet mobile app can scan a Bitcoin address QR code.

Public and Private Keys

There are many technicalities in the way Bitcoin addresses are generated. The most important one we need to focus on is the creation of cryptographic keys. Namely, two such keys are generated when you create a BTC wallet — a public key and a private key.

Basically, your Bitcoin address is just another instance of the generated public key, so it can be shared or made public without fearing you’ll lose any Bitcoin. Unlike the public key, the private key gives you complete control over the Bitcoin amount accumulated on the address, and you shouldn’t share it with anyone. If your private key falls into the wrong hands, malevolent individuals or hackers can transfer the complete amount of Bitcoin from your wallet to their own address. 

Depending on where you keep your private key, it might get accidentally compromised or leaked to the public. Should such a situation occur, it would be best that you take out all funds from your wallet as fast as possible before malicious third parties can get their hands on your private key. 

BTC Wallets and Security

There is a difference between using hardware wallets like Ledger Nano S or Trezor, which are physical devices that keep your keys stored internally, and online wallets such as those provided by centralized exchanges like Coinbase and Kraken. Among these two options, hardware wallets are more secure.

If you use either a hardware or a desktop software wallet, you’ll actually have direct access to your private keys. Online Bitcoin wallets, on the other hand, only give you a public, receiving address — they don’t give you direct access to your private keys; instead, they take care of them for you. This is rather understandable for online wallets because there would be great security implications if an online wallet user gets their wallet’s private keys leaked.

Another important thing to know is that Bitcoin’s public blockchain logs all BTC transactions. Due to the public nature of the blockchain, anyone who knows your receiving address can see the transactions and the exact quantity of funds that enters or leaves your wallet. As a solution to this problem, there are wallet services that give you the option to change your Bitcoin wallet address each time you do a Bitcoin transaction.

A Few Ending Words…

Your Bitcoin address is an alphanumeric string of up to 35 characters that you need in order to engage in any kind of Bitcoin transaction. If any third party needs to pay you in Bitcoin, they need to have the receiving Bitcoin address of your wallet. Conversely, if you need to pay someone in BTC, you need their address as well. We hope this guide has helped you understand how Bitcoin addresses work.