Bitcoin Addresses

Taproot Addresses

Taproot is an enhancement over SegWit, introduced by BIP 341, and utilizes Schnorr signatures instead of ECDSA. Taproot addresses further improve privacy, efficiency, and flexibility compared to even Native SegWit addresses.

The Ordinals protocol leverages Bitcoin’s Taproot upgrade to take advantage of reduced script size limits and increase file storage capacity for Ordinal inscriptions. Oyl Wallet uses Taproot addresses for sending and receiving Ordinals, BRC20s, inscriptions and other meta-protocol artifacts.

Native SegWit Addresses

A native Segregated Witness (SegWit) wallet refers to a type of wallet that supports the Bitcoin SegWit address format directly. SegWit is a protocol upgrade implemented to address transaction malleability and increase the scalability of the Bitcoin network.

SegWit offers reduced transaction fees and increased capacity for transactions within a block. By segregating the witness data (signatures) from the transaction data, SegWit allows for more efficient use of block space.

Oyl wallet uses Native SegWit addresses when sending or receiving spot Bitcoin—SegWit addresses are not recommended for sending or receiving Ordinals, inscriptions or BRC20s.

Nested SegWit Addresses

Nested SegWit, also known as P2SH-SegWit, refers to the use of SegWit transactions within a Pay-to-Script Hash (P2SH) structure. Nested SegWit addresses begin with "3" and allow users to benefit from some of SegWit's advantages, like lower fees compared to legacy addresses and increased transaction efficiency, while maintaining compatibility with older Bitcoin infrastructure that may not support native SegWit addresses directly.

These addresses are commonly used because they strike a balance between the newer SegWit features and broader compatibility with wallets and services that have not yet upgraded to support native SegWit (bech32) addresses. For instance, certain exchanges and wallet services recommend using nested SegWit addresses to ensure compatibility across various services.

Legacy Addresses

Legacy Bitcoin addresses, also known as Pay-to-Public-Key Hash (P2PKH), start with the number "1" and were the standard before the introduction of SegWit. These addresses are generally supported by older Bitcoin wallets, making them the most universally compatible. However, transactions made from legacy addresses do not benefit from the improvements brought by SegWit, such as reduced block weight. As a result, they incur higher transaction fees and contribute more to blockchain bloat. Despite these drawbacks, legacy addresses remain popular in scenarios where the highest level of compatibility is required or in systems that have not been updated to support SegWit.