What is a Bitcoin address and how to protect your funds?

Education Nov 12, 2020

Every time you sell or buy Bitcoin with Safello, you will be asked to provide your Bitcoin address, which consists of a sequence of numbers and letters. Similar to a mailing address where you live, a Bitcoin address is the 26 to 35 characters long “virtual address” where your bitcoins are located. It is generated by the cryptocurrency wallet where you store your Bitcoins.

How do I get a Bitcoin address?

In order to get a Bitcoin address, you need to have a bitcoin wallet, which will generate a new address every time you want to produce an invoice or receive bitcoins. Bitcoin addresses consist of a mix of both alphabetic and numeric symbols and begin either with “1” (P2PKH format), “bc1” (Bech32 format), or “3” (P2SH  format).

A Bitcoin wallet is  software or a physical device which is designed to securely store, receive and send bitcoins. As we explained in our previous article, there are two types of cryptocurrency wallets: software and hardware. You will need an Internet connection in order to use or manage software wallets (cloud-, mobile- or exchange-based). Alternatively, hardware wallets (paper, USB or real-world items, such as Casascius coins) do not require the Internet to manage your digital funds. Most traders store their cryptocurrencies on both types of wallets which can also be a good security strategy. Safello recommends using Ledger, Trezor, KeepKey and BitBox as the most reliable and established hardware wallets in the market.

Example of a hardware wallet: Ledger Nano S

Bitcoin addresses have a direct influence on users’ privacy. It is important to note that you as a bitcoin holder are responsible for following the best proven practices to ensure the safety of your digital funds.

How to protect your bitcoins?

Bitcoin is one of the most trusted and recognized cryptocurrencies in the market, which can provide sufficient security levels if you adopt all necessary measures. In one of our articles, we explained how to be on the safe side when you buy bitcoin from finding a trusted crypto wallet to choosing a reputable cryptocurrency brokerage platform. You should also make sure to follow all necessary security recommendations when actually carrying out a transaction and using your bitcoin address.

Below are the most well-known practices which will help you to protect your bitcoins.

Keep your Bitcoin addresses safe

The truth is that a Bitcoin address has two sides of a coin. On the one hand, financial institutions and regulated cryptocurrency platforms need to be able to identify transactions in order to verify their customers and ensure their security. This can only be done with the help of a Bitcoin address, which reveals the history of transactions in which it was involved. On the other hand, that doesn’t mean you have to disclose data to the entire public or unauthorised parties. You can send your Bitcoin address and other private information to authorised bodies or trusted parties. It can be shared on social media or any other Internet space only in case you really need to - for example, when asking for public contributions or donations.

Generate a new Bitcoin address for every new transaction

Bitcoin is designed in a way to make transactions fully transparent and public. What is more, all successful transactions are stored in the Bitcoin blockchain. The only information, which can reveal the bitcoin location and where it is sent, is the Bitcoin address. Once you use your bitcoin address and the transaction is complete, it will become possible to see all transactions that your indicated address was involved with. For security reasons, it is recommended to create a new Bitcoin address every time you want to send or receive crypto funds.

Use several different wallets

In line with creating a new BTC address every time you want to send or receive crypto, experts also suggest using several different wallets which serve different purposes. For example, you can have a hardware wallet, such as Ledger, Trezor, KeepKey or BitBox for long-term investments, or HODLing, and a cryptocurrency wallet (or even two) for active trading or simply buying bitcoins. By following this strategy, hackers will not be able to associate transactions performed from different wallets and Bitcoin addresses with one person.

To sum up

A Bitcoin address is an important concept when it comes to sending or receiving funds and users should always remember some well-known practices to protect their digital funds from scam and other illicit operations.

Olena Burutina

Writer for Safello

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