Bitcoin address fourth-generation update record: The long evolution from Legacy to Taproot

Bitcoin has been around for over a decade, and address types have undergone four generations of iteration. Each upgrade did not appear out of nowhere but was aimed at solving the efficiency bottlenecks of the previous generation. Today, these four address types each occupy different positions within the ecosystem.

Overview Comparison of the Four Address Types

Legacy addresses (starting with 1) are the oldest design. Since Bitcoin’s birth on January 3, 2009, the simplest public key-private key pair creation method was used, known as P2PKH (Pay to PubKey Hash). After more than ten years of operation, the biggest issues with Legacy addresses have become apparent—large space consumption, high transaction fees—and they are gradually being replaced by newer address types.

Nested SegWit addresses (starting with 3) are a transitional solution. In 2017, the Bitcoin community introduced P2SH (Pay to Script Hash) addresses to maintain backward compatibility with old wallets. These addresses support multi-signature technology, suitable for enterprise and institutional scenarios requiring multiple authorizations.

Native SegWit addresses (starting with bc1) are the native form of the SegWit upgrade. They adopt the Bech32 standard format, which is case-insensitive, and enable more efficient address calculation. Compared to the previous two generations, Native SegWit significantly reduces transaction data size, lowers fees, and has become the mainstream among active Bitcoin addresses.

Taproot addresses (starting with bc1p) represent the latest direction. Launched via soft fork in November 2021, they introduced Schnorr signatures and Merkle Abstract Syntax Trees (MAST), elevating transaction efficiency and privacy protection to new levels.

Why Does Bitcoin Keep Upgrading

Early Bitcoin faced a hard constraint: the block size was limited to 1MB. This limit quickly became a bottleneck. Around 2016, the community attempted multiple scaling solutions. Bitcoin Classic wanted to increase block size to 2MB, Bitcoin XT aimed for 8MB, but all failed. These failures reflected the community’s commitment to decentralization—preferring to sacrifice simple, brute-force scaling in favor of finding a balanced solution.

A real breakthrough came with the 2017 SegWit (Segregated Witness) upgrade. This upgrade was not just about changing size limits but restructured transaction data—separating digital signatures (witness data) from transaction records. As a result, transaction information shrank, and the effective block capacity increased to about 4MB, with transaction fees dropping significantly.

However, SegWit also caused a split in the community. Opponents created Bitcoin Cash (BCH). Currently, BCH is priced at $539.34, down 4.97% in the past 24 hours.

Technical Breakthroughs of Native SegWit and Segregated Witness

The key innovation of SegWit is the introduction of the Redeem Script. The payee becomes a script, allowing the definition of flexible logic—such as multi-signature, time locks, etc. Objectively, this expanded Bitcoin’s programmability.

Native SegWit further adopts the Bech32 format for addresses, creating the native SegWit address starting with bc1. This design is case-insensitive, improves computational efficiency, and enhances user experience. After years of adoption, Native SegWit now covers the vast majority of active Bitcoin addresses.

SegWit also gave rise to the Lightning Network—the most longstanding second-layer scaling solution in Bitcoin’s history. With SegWit as a foundation, Layer 2 ecosystems became possible.

How Taproot Upgrades Can Drive the Inscriptions Wave

In November 2021, the Taproot soft fork took effect. This upgrade included three core improvements:

BIP340 introduces Schnorr signatures, enabling the verification of multiple transactions simultaneously and achieving signature aggregation. Multiple signatures within a transaction are combined into one, making it indistinguishable from a regular signature and greatly enhancing privacy.

BIP341 optimizes transaction data storage, further reducing on-chain space consumption.

BIP342 introduces Tapscript, a new version of Bitcoin’s scripting language. Coupled with MAST (Merkle Abstract Syntax Tree), it allows only the actual executed script logic to be revealed, hiding unused logic and improving privacy and efficiency.

The core change brought by Taproot is—Bitcoin scripts now have greater flexibility. This flexibility provides the foundation for inscriptions (Inscriptions) and Taproot Assets to thrive. The explosion of inscriptions in 2024 is closely tied to the Taproot upgrade. Ordinals tokens are currently valued at $4.69, up 2.76% in the past 24 hours.

Current Status and Outlook

Today, the Bitcoin address ecosystem has become fragmented. Legacy addresses are essentially phased out; Nested SegWit still has demand in enterprise and multi-signature scenarios; Native SegWit has become the main choice for individual users; Taproot represents the future, gradually being adopted by on-chain application layers.

These four generations of iteration reflect a characteristic of the Bitcoin community—being both radical and conservative. Radical in continuous innovation, conservative in their commitment to decentralization and security. Each upgrade is thoroughly debated, voted on by the community, and tested over the long term before implementation. BTC is currently priced at $87,070, down 3.05% in the past 24 hours. This pace may not be the fastest, but it ensures the steady evolution of the Bitcoin ecosystem.