What are change addresses and why do I get a new address in my wallet each time?

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Adriaan Admin

Administrator
Staff member
Jan 30, 2018
231
45
28
www.bitcoinforbeginners.io
#1
The concept of change addresses and the fact that most wallet software generate a new address for each new payment in Bitcoin can be confusing for beginners. That is because of the structure of accounting in Bitcoin's protocol (and that of other coins that follow that same structure). What happens is that each time you receive a new payment with your wallet, your wallet will generate a new wallet address where the amount will be received. The software will calculate your total balance of all wallet addresses together.

Now if you do a payment, but not use the full amount that is in one wallet address, the software will not only send the payment to the address that you wanted to, but it will also send the remainder balance to another wallet address that is generated by your wallet. If you would check the old wallet address on a blockchain explorer, your balance will appear zero because of that (but don't worry, the rest of the balance is now stored on another address managed by your wallet; it will appear in your balance of the wallet software). And this has scared many people in the past who weren't aware that Bitcoin is designed like this.

The main reason for this feature is:
  1. Not having to use the same private key twice over the network, which could in theory jeopardize a wallet address if there would remain a balance on that address.
  2. To enhance pseudonymity, because 1 person doesn't use the same address over and over and funds are transferred to multiple destinations, it should be harder to connect someone's identity with a wallet address(es).
On Bitcoin it is ofcourse possible within your wallet software to reuse a used address again, but because of above reasons this is not recommended, because Bitcoin is specifically designed to avoid the reuse of same addresses.

Other protocols, like for example Ethereum don't use this specific feature; they use an account balance system where you do use the same address for all your incoming and outgoing transactions. Such protocols have therefore a lot less privacy!! Then again, Ethereum was originally not designed to be used as a currency but as a utility gas token to pay for the computation on the Ethereum Virtual Machine which is run on the Ethereum blockchain network and executes the smart contracts.
 
Likes: NUKUM3

stellarowl12

Administrator
Staff member
Jan 30, 2018
80
58
18
#2
The concept of change addresses and the fact that most wallet software generate a new address for each new payment in Bitcoin can be confusing for beginners. That is because of the structure of accounting in Bitcoin's protocol (and that of other coins that follow that same structure). What happens is that each time you receive a new payment with your wallet, your wallet will generate a new wallet address where the amount will be received. The software will calculate your total balance of all wallet addresses together.

Now if you do a payment, but not use the full amount that is in one wallet address, the software will not only send the payment to the address that you wanted to, but it will also send the remainder balance to another wallet address that is generated by your wallet. If you would check the old wallet address on a blockchain explorer, your balance will appear zero because of that (but don't worry, the rest of the balance is now stored on another address managed by your wallet; it will appear in your balance of the wallet software). And this has scared many people in the past who weren't aware that Bitcoin is designed like this.

The main reason for this feature is:
  1. Not having to use the same private key twice over the network, which could in theory jeopardize a wallet address if there would remain a balance on that address.
  2. To enhance pseudonymity, because 1 person doesn't use the same address over and over and funds are transferred to multiple destinations, it should be harder to connect someone's identity with a wallet address(es).
On Bitcoin it is ofcourse possible within your wallet software to reuse a used address again, but because of above reasons this is not recommended, because Bitcoin is specifically designed to avoid the reuse of same addresses.

Other protocols, like for example Ethereum don't use this specific feature; they use an account balance system where you do use the same address for all your incoming and outgoing transactions. Such protocols have therefore a lot less privacy!! Then again, Ethereum was originally not designed to be used as a currency but as a utility gas token to pay for the computation on the Ethereum Virtual Machine which is run on the Ethereum blockchain network and executes the smart contracts.
Oooh very informative, I will share this post with others!
 
Likes: Adriaan Admin