Most beginners learn that a Bitcoin address is where you receive funds. Fewer learn that Bitcoin has four distinct address types, each constructed differently, priced differently, and supported to different degrees across wallets and exchanges. Picking the wrong one doesn't usually mean losing Bitcoin, but it can mean paying more in fees than you should, or sending to an address a counterparty's wallet can't actually read.
The four address types, explained
Every Bitcoin address is derived from a public key, but the format used to express that address has changed several times since the network launched in 2009. The four types you'll encounter are Legacy (P2PKH), Pay-to-Script-Hash (P2SH), Native SegWit (Bech32), and Taproot (Bech32m).
Legacy addresses (P2PKH)
Legacy addresses start with the number 1. They are the original Bitcoin address format and are supported by every wallet and exchange without exception. That universal compatibility is their main advantage. The disadvantage is cost: transactions sent from Legacy addresses are larger in bytes, which means they consume more block space and attract higher network fees. If you're using a very old wallet that can't be updated, you're probably dealing with Legacy addresses. Otherwise, there's little reason to use them in 2026.
P2SH addresses
P2SH addresses start with the number 3. This format was introduced to support more complex transaction scripts, including the early wrapped version of SegWit. P2SH fees sit between Legacy and Native SegWit. The format still sees heavy use because some older wallets use it as a compatibility bridge to SegWit features without requiring full SegWit support. You'll often see P2SH addresses on exchanges that haven't fully migrated their infrastructure.
Native SegWit addresses (Bech32)
Native SegWit addresses start with bc1q and use the Bech32 encoding format. These are the product of the Segregated Witness upgrade, which moved signature data out of the main transaction body and into a separate witness field. The result is smaller transactions, lower fees, and better error detection when you type an address incorrectly. Most modern wallets default to this format. If your wallet gives you a choice and you don't have a specific reason to go elsewhere, Native SegWit is the practical default.
Taproot addresses (Bech32m)
Taproot addresses start with bc1p and use the newer Bech32m encoding. The Taproot upgrade brought Schnorr signatures into the protocol, which makes complex multi-signature and smart contract transactions look identical to simple payments on the blockchain. That has real privacy benefits. Taproot transactions are also marginally cheaper than Native SegWit in some cases. The catch is that not every wallet or exchange supports receiving to Taproot addresses yet. Before sending to a bc1p address, confirm the recipient's wallet can accept it.
How to tell address types apart at a glance
The first characters tell you everything:
- Starts with 1: Legacy (P2PKH)
- Starts with 3: P2SH (wrapped SegWit or other scripts)
- Starts with bc1q: Native SegWit (Bech32)
- Starts with bc1p: Taproot (Bech32m)
You can send Bitcoin from any address type to any other address type without issue. The format of the sender's address and the format of the recipient's address are independent. Fees depend on the sender's address format, not the recipient's.
Which address type should you actually use?
For most people buying and holding Bitcoin in 2026, Native SegWit (bc1q) is the right choice. It's broadly supported, produces lower fees than Legacy or P2SH, and works with every major Australian exchange. McLeod Pacific Investments supports Native SegWit addresses for all Bitcoin purchases and sales through its platform.
Taproot (bc1p) is the better option if privacy matters to you and you're confident the wallets on both sides of the transaction support it. The Schnorr signature scheme that powers Taproot makes your multi-key or time-locked transactions indistinguishable from simple ones at the blockchain level. That's a meaningful privacy gain, not just a technical one.
P2SH is worth using only when compatibility requires it, for example, if you're sending to an exchange or service that doesn't yet support native bc1 addresses. Legacy is last resort territory. The fees are noticeably higher, and there's no functional reason to default to it on a modern wallet.
A note on address format and wallet recovery
Address types connect directly to derivation paths inside your wallet. If you ever restore a seed phrase and your wallet uses a different default address type than the one your original wallet used, your balance may appear to be zero even though the funds are safe. The coins sit at addresses your new wallet isn't looking at. Most good wallets let you switch address types manually in settings, or will scan multiple paths automatically on recovery. This is one of the practical reasons to understand what address type your wallet uses before you need to recover it.
The simplest precaution: record which address format your wallet defaults to alongside your seed phrase backup. Knowing you were using bc1q addresses saves real confusion if you ever switch wallet software later.