Imagine you just bought your first Bitcoin. You've heard that BTC is the future and you're excited to jump into this new digital economy. However, a few days later you see a headline that says Bitcoin is crashing. Your heart sinks. What does this mean? Should I sell? Buy more? Wait? What is Bitcoin data? What Is Bitcoin Halving? As you try to understand what is happening, these questions race through your mind. This article will help you get answers to these questions and more. We’ll break down exactly what Bitcoin data is and show you how to interpret it so that you can make smarter investment decisions in the Bitcoin market.
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What is Bitcoin Data and Its Importance
Bitcoin has various data types, most of which are represented by alphanumeric strings. These strings may initially seem indistinguishable, but each Bitcoin data type has unique identifiers to help users distinguish between them.
Addresses
Addresses are the most common Bitcoin data type for users to see and interact with. Addresses are used to receive Bitcoin, so they are often shared publicly and displayed on the blockchain. It is a best practice for users to generate and share a new address each time they wish to receive Bitcoin. There are several types of Bitcoin addresses, each with a distinct beginning sequence:
1…
Addresses beginning in 1 are the most common. They are the most common address type, and they are meant for P2PKH transactions. This address is simply a hash of a public key, with the 1 digit added to the beginning as an identifier. P2PKH addresses use Base58 encoding, which is case-sensitive.
3…
Addresses beginning with 3 are also common. They are used for P2SH transactions. These types of addresses may be (nested) SegWit addresses, but they might also be multi-sig addresses. Using this kind of address, if it is a SegWit address, will offer savings on transaction fees. P2SH addresses use Base58 encoding, which is case-sensitive.
Bc1…
These addresses are (native) SegWit addresses. Sending to these addresses offers the greatest fee savings compared to the former two addresses. These transactions are also often longer than the former two. Native SegWit addresses use Bech32 encoding, which only uses lowercase letters.
2…
An address beginning with 2 is a testnet address, meant to receive test Bitcoin (tBTC). Never send real Bitcoin to these addresses.
Public Keys: The Brief Interlude Before Bitcoin Addresses
Public keys are used less commonly by Bitcoin users nowadays. Addresses have mostly replaced them as the way to receive Bitcoin. You may occasionally see them. Public keys are much longer than addresses and also have specific beginning sequences:
02… or 03…
These are standard public keys encoded in SEC format. They can be hashed and turned into addresses for receiving as needed, used to create multi-signature addresses, or used to verify signatures. Very early Bitcoin transactions used public keys as part of P2PK transactions.
xpub…, ypub… or zpub…
These are extended public keys or xpubs. They are used to derive many public keys as part of a Hierarchical Deterministic (HD) wallet. They should only be shared with parties you trust, even though they are public keys, as anyone with access to your xpub can track your entire past and future transaction history.
Blocks: The Building Blocks of the Bitcoin Blockchain
Blocks are large data structures, so you will rarely see the raw data of a block. Every block can be identified by its height and hash.
Block Height
Each block is numbered in ascending order, starting at zero. So far, just over 850,000 blocks exist, so most block heights you will encounter will be six digits.
Block Hash
A block hash is the SHA-256 hash of the block’s data, usually represented in hexadecimal format. A block hash can be interpreted as a very large number. A block hash must be below a certain threshold to satisfy the Proof-of-Work requirement.
All block hashes start with a series of zeros followed by an alphanumeric string. Some blocks have as many as twenty leading zeros, while earlier blocks have as few as eight. The number of zeros required demonstrates the difficulty of mining when the block was published.
Transactions: The Chunks of Data That Make Bitcoin Go
Transactions are usually 250-400 bytes long and represented in hexadecimal format. They can be recognized by their txid or hash. Thanks to SHA-256’s strong randomness, no two transactions should have the same ID.
Transaction IDs are alphanumeric strings, which are all 64 characters long. They have no defined beginning sequences, but their length and the fact that, unlike block hashes, they don’t start with a string of zeros should help you identify them.
Signatures: The Unique Identifiers of Bitcoin Transactions
A Bitcoin signature using the ECDSA signature scheme is between 71 and 73 bytes long and represented using DER encoding. Bitcoin signatures always start with the prefix ‘30’. Inside a signature, two ‘02’ prefixes precede the R and S values that comprise it.
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How To Read Various Types Of Bitcoin Data
Public keys are foundational to Bitcoin security. Users who want to receive Bitcoin share their address with the sender. The receiver's address is derived from their public key, which is created from the user's private key through cryptographic algorithms. From a security perspective, public keys allow anyone to verify the authenticity of a message or transaction signed with the corresponding private key without revealing the private key itself.
This mechanism ensures that Bitcoin transactions are secure, tamper-proof, and non-repudiable, as only the private key owner can authorize transactions for their Bitcoin address. Public keys are predominantly replaced by addresses for transactional purposes, but they still find use in multi-signature setups or signature verification.
What are Bitcoin Blocks?
As the backbone of Bitcoin's blockchain, blocks are seldom seen in raw form by users but are identifiable via height or hash. Block height refers to the number of blocks in the blockchain preceding a particular block. It serves as a way to measure the progress of the blockchain and identify the order of transactions.
In the context of Bitcoin, the block hash plays a vital role in the proof-of-work (PoW) process, serving as a target for miners to meet or exceed with the miner’s hash calculations, thereby validating their effort and securing the network. This process of finding a hash that matches the difficulty level, represented by the leading zeros, ensures the decentralized consensus and integrity of the Bitcoin blockchain.
Bitcoin Addresses: The Different Types and Their Functions
Central to user interaction, Bitcoin addresses facilitate the reception of funds on the blockchain. Generating a fresh address for each incoming transaction is advisable for enhanced security and privacy. Bitcoin addresses manifest in different formats, each earmarked by a specific leading character.
P2PKH Addresses
Initiated with “1,” these legacy addresses are prevalent for their role in Pay-to-Public-Key-Hash (P2PKH) transactions. They embody a public key’s hashtagged with a “1” for recognition. They are encoded in Base58 and sensitive to case variations.
P2SH Addresses
Starting with “3”, these addresses cater to Pay-to-Script-Hash transactions and can encapsulate SegWit or multisig wallets, potentially lowering transaction fees. Like P2PKH, P2SH utilizes Base58 encoding.
Native SegWit Addresses
Starting with “bc1”, these represent the evolution in addressing, designed for SegWit transactions to further economize on fees and extend transaction lengths through Bech32 encoding, which strictly employs lowercase.
Testnet Addresses
Users of Bitcoin should aim to steer clear of addresses beginning with “2”, as they belong to the testnet, exclusively for trial purposes and not for actual Bitcoin transactions.
Understanding Bitcoin Transactions
Transactions, the essence of Bitcoin’s functionality, along with signatures, ensure security and authenticity within the network. These digital agreements, typically ranging between 250-400 bytes, are identified by a unique transaction ID (txid), a 64-character alphanumeric string generated by hashing the transaction details.
What Are Bitcoin Signatures?
Signatures in Bitcoin utilize the ECDSA (Elliptic Curve Digital Signature Algorithm), which ensures the integrity of transactions by providing a secure and verifiable method of signing digital data. They span 71-73 bytes in DER (Distinguished Encoding Rules) format, starting with ‘30’ and including two ‘02’ prefixes ahead of the R and S values, forming the signature.
DER format is a binary encoding format for data structures described by ASN.1 (Abstract Syntax Notation One). It’s used to ensure that data structures, such as signatures in Bitcoin, are encoded and transmitted in a universally recognizable manner, allowing for consistent and secure data exchange across different systems.
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