Differences Between Bitcoin Addresses Starting With 1, 3, and bc1: Which Offers Cheaper Transaction Fees?

Introduction to Bitcoin Address Prefixes

Bitcoin addresses are alphanumeric strings ranging from 26 to 34 characters, identifiable by their prefixes. The three most common prefixes are:

1. Legacy Addresses (1 prefix)
2. Multisig/Script Hash Addresses (3 prefix)
3. SegWit (Bech32) Addresses (bc1 prefix)

Each type differs in structure, functionality, and cost efficiency for transactions. Below we explore their technical distinctions and economic implications.

1. Legacy Addresses (P2PKH - "1" Prefix)

Characteristics:

• Original Bitcoin address format (e.g., 1A1zP1...)
• Uses Pay-to-Pubkey-Hash (P2PKH) scripting
• Compatible with all wallets and exchanges since Bitcoin’s inception

Example:
The Genesis Block address (1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa) holds over 68 BTC from community contributions.

Limitations:

• Larger transaction size → Higher fees
• No support for advanced features like multisig or SegWit

2. Multisig Addresses (P2SH - "3" Prefix)

Characteristics:

• Introduced via BIP 16 (2012)
• Uses Pay-to-Script-Hash (P2SH) for complex scripts (e.g., multisig)
• Example: 3EktnHQD7RiAE6uzMj2ZifT9YgRrkSgzQX

Common Use Cases:

• Multisignature wallets: Require multiple approvals (e.g., 2-of-3 signatures)
• Compatibility layer for SegWit (more below)

Fee Efficiency:

• Slightly better than Legacy addresses but less optimized than SegWit.

3. Segregated Witness (SegWit) Addresses

SegWit-Compatible ("3" Prefix)

• Uses P2SH wrapping for backward compatibility
• 24% cheaper fees vs. Legacy addresses
• Supported by most wallets/exchanges

Native SegWit ("bc1" Prefix)

• Pure SegWit format (Bech32 encoding)
• 35% cheaper fees vs. Legacy addresses

• Additional perks:

  • Error-resistant capitalization
  • Smaller QR codes
  • Future-proof for Lightning Network

Example Address:
bc1qa5ndt07z2lu7r2kl6zrffw362chj74vse76lq5

Transaction Fee Comparison

👉 Compare fee savings across wallets

Why Are SegWit Addresses Cheaper?

1. Smaller Transaction Size: Moves signature data outside the main block, reducing bytes.
2. Block Capacity: More transactions fit per block, lowering competition for space.
3. Discounts: Miners often prioritize SegWit transactions due to efficiency gains.

Adoption Challenges

• Limited Support: Only ~1% of BTC is stored in bc1 addresses (2024 data).
• Wallet Compatibility: Electrum, Wasabi, and BlueWallet support bc1; others like Bitpie/imToken do not.
• Exchange Limitations: Many allow withdrawals to bc1 but not deposits.

Recommendations

1. Upgrade to "3" Addresses if your wallet lacks bc1 support.
2. Migrate to "bc1" for long-term savings (use Electrum or similar wallets).
3. Monitor Adoption: As bc1 support grows, transition fully.

👉 Step-by-step guide to creating a SegWit address

FAQ

Q1: Can I send BTC from a Legacy address to a SegWit address?
Yes! All address types are interoperable.

Q2: Which exchanges support bc1 deposits?
Kraken, Binance, and OKX partially support it; check their latest policies.

Q3: Are SegWit transactions slower?
No—they’re faster due to optimized validation.

Q4: Is SegWit secure?
Yes, it enhances security by separating signatures from transaction data.

Q5: Why don’t all wallets support bc1?
Bech32 requires software updates, which some wallets delay for backward compatibility.

Conclusion

• Best for Fees: Native SegWit (bc1) saves up to 35%.
• Balanced Choice: SegWit-compatible (3) offers broad support with 24% savings.
• Future-Proof: Migrate to bc1 as adoption grows.

Always verify address compatibility with your wallet/exchange before transferring large amounts.