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Checksum

What Is A Checksum?

Understanding Bitcoin Checksums

In order for bitcoin to “work” properly, there are countless small details and processes that all have to align in order to carry out each transaction running through the network.

One of those “small” details is a checksum. Just because it’s small, however, does not mean it’s unimportant. Without them, bitcoin wouldn’t even be able to exist today.

Diving into the nuances of bitcoin can help solidify your understanding of how all these components interplay with one another to create a truly censorship-resistant, decentralized monetary network.

So, with that, let’s take a look at checksums in bitcoin to learn about their role within the network and how checksums uphold bitcoin’s robust security system.

What Is A Checksum?

The first thing to understand is that checksums are not specific to bitcoin. We’ve been using checksum technology for years already in Information Technology (IT) fields that require data storage or transmission.

At its core, a checksum is simply a small parcel of data, derived from a larger block of data, that’s used to verify if the original block of data matches. Checksums serve as a detection and prevention mechanism for any typos or tampering of information being transmitted.

Think of checksums like a piece of data’s digital footprint. The data itself contains the content, but the checksum is the fingerprint that gets “scanned” to verify the integrity of the data as it moves through a network or sits in storage.

How Do Bitcoin Checksums Work?

You can attach checksums to just about any data prior to sending it by running it through a cryptographic hash function.

In the context of bitcoin, checksum becomes particularly relevant when it comes to wallet addresses.

Each time someone generates a new wallet address, the Bitcoin blockchain adds a checksum next to it that serves as a “validator” of sorts. Every time someone makes a transaction with this address, it cross references the checksum to ensure that the address is valid.

With bitcoin, you start with a double SHA-256 hash in order to derive the checksum.

The first four bytes resulting from that hashing process are used as the checksum, which is then attached to the end of the original address.

Bitcoin checksum diagram

In theory, using the full string of data for the checksum would be more reliable, but it would make for a very long address that may not be as convenient. By using the first four bytes, the system achieves enough “uniqueness” while keeping the data concise and clear.

If you make just one small typo or error to invalidate an address, the checksum will recognize that the data and the checksum don’t align and prevent the transaction from taking place.

Keep in mind though that this isn’t necessarily a 100% fail-safe solution. If you mistype the address you mean to send funds to, but instead type in a different valid BTC address, the transaction could still go through since the checksum recognizes the address as valid.

So make sure that whenever you’re sending bitcoin, you’re fully confident that the destination is accurately defined.

What Happens If You Mistype A Bitcoin Address?

Let’s cut to the chase: If you enter a wrong address and send BTC to it, consider that bitcoin lost forever.

But don’t worry: Checksums are designed to dramatically reduce the likelihood of this. To check the status of the transaction:

  1. Go to a blockchain explorer.
  2. Enter your transaction ID (TXID) in the search bar.
  3. Verify the sender and recipient addresses, as well as any other relevant information.

If you sent bitcoin to the wrong address, you should see that the recipient address doesn’t align with the address you intended. Unfortunately, the bitcoin is likely lost at this point assuming the transaction goes through and receives confirmations.

Lost bitcoin makes up an ever-growing percentage of bitcoin’s total supply. Decrypt estimates that out of 21 million bitcoin, around 3.7 million have been lost, and another 1 million reside in Satoshi’s wallet address. That leaves roughly 16.3 million bitcoin left in total.

Despite these metrics, however, your chances of sending bitcoin to the wrong address are incredibly slim. Besides the wealth of new Bitcoin tools that make interacting with bitcoin easier for the everyday person, there are plenty of low-effort measures you can take to prevent sending meaningful amounts of bitcoin to the wrong address:

  • Copy/paste recipient addresses instead of typing them manually.
  • Take advantage of QR code scanning to reduce friction and user error.
  • Send a small test transaction beforehand to ensure everything is in order.
  • Ensure that your transaction’s fee rate aligns with average block demand (using mempool.space) to ensure that your transaction isn’t placed far back into the mempool.

Where Are Bitcoin Checksums Implemented?

As noted, the first and main place where checksums matter is for Bitcoin addresses. However, another less-mentioned use for checksums is in private keys displayed using Wallet Import Format (WIF).

WIF is a standardized way of displaying Bitcoin private keys that uses the Base58Check encoding scheme. This process contains three core components:

  1. Taking the private key and adding a prefix byte (either 0x80 for mainnet, or 0xef for testnet), which enables a private key to display with either a “5” or “k” as the prefix.
  2. Attaching a 0x01 byte to the end of the private key depending on whether or not the associated public key is standard encoded according to the Standards for Efficient Cryptography (SEC).
  3. Adding a checksum byte to prevent typos or other mistakes.Converting the resulting string of bytes into the Base58Check encoding scheme.

Base58Check is nearly identical to bitcoin’s Base58 encoding scheme, except that it contains a checksum and represents private keys in WIF format, as well as a prefix to identify the specific address type:

  • Pay-to-Public-Hash (P2PKH) uses a “1”
  • Pay-to-Script-Hash (P2SH) uses a “3”
  • WIF uses a “5”

Comparing Bech32 Checksums to P2PKH & P2SH’s

Not all checksums are the same. While they all serve the same purpose, how they uphold Bitcoin’s security depends on the type of wallet address you’re working with.

For more traditional address checksum found in P2PKH and P2SH, the Bitcoin address follows a standard Base58Check encoding that includes the four-byte checksum derived from the double SHA-256 hash.

On the other hand, Bech32 addresses use an encoding scheme that includes SegWit support as well as the ability to generate Lightning invoices. The addresses have a 32-character set rather than Base58Check’s 58 characters. It excludes the characters “1”, “b”, “i”, and “o”, and its checksum makes up 6 of this address’s 32 characters.

In this design, Bech32’s checksum is referred to as the Bose-Chaudhuri-Hocquenghem (BCH) code.

What’s The Benefit Of Having A Checksum?

Over the years, people have managed to make all sorts of mistakes to lose their bitcoin, and today, all that lost bitcoin makes up a very large percentage of the total BTC supply.

The last thing you want to have happen to you is mistakenly sending bitcoin to a friend, or yourself, but watching it vanish rather than arrive at the proper address – all because you mistyped a single character in the recipient address.

While plenty of people have sent bitcoin to the wrong valid address over the years, those mistakes never arose from a fundamental problem with bitcoin itself – it was mere human error.

This is where an important distinction needs to be made clear about Bitcoin checksums. Checksums uphold bitcoin’s security and protect people from sending bitcoin to invalid addresses, but user error can still lead to lost bitcoin.

Bitcoin side steps the unsustainable credit-based financial system we rely on today, but that also means that the money you’re moving around online is real. You can lose it, forever, if you’re not careful with it.

Thankfully, operating confidently on a Bitcoin standard is becoming easier and easier over time with more user-oriented tools:

  • QR codes remove the need for users to enter addresses manually. Instead, the recipient encodes their public address into a QR format for both on-chain and lightning wallets to scan.
  • Multisignature (multisig) wallets require multiple signatures to broadcast transactions. While introducing more friction into the process, requiring more than one signature ensures that you double check the transaction data before signing off on it.
  • Collaborative custody solutions like AnchorWatch or LockedBTC ensure that you can pass on your backups (if needed), and serve as a general failsafe for your private keys. All the while you still have full access and control of your holdings.

Along with these innovations, there’s plenty more in the works to make bitcoin more seamless than today’s traditional financial system could possibly ever be.

Why Are Checksums Important?

Checksums are critical to informing and empowering the network’s users to have confidence knowing that their BTC is arriving where it’s intended.

Without them in place, the Bitcoin network could’ve become anxiety-ridden with countless cases of error that likely would’ve prevented prolonged adoption of the digital asset. However, since Satoshi Nakamoto implemented this error-checking technology, bitcoin is much easier to use and rely on for payments.

Bitcoin’s integrity as a decentralized monetary network would have no ground to stand on if it consistently allowed for users to send funds to demonstrably invalid and irrelevant addresses. A game without rules wouldn’t be played at all, and that applies to bitcoin as well: No one would participate in the network if there was no structure in place for sending and receiving payments reliably.

Keeping Your Bitcoin Safe Beyond Checksums

A moral hazard is when someone is less incentivized to protect themselves from risk when they know they’re safe from its consequences.

Just because bitcoin has safeguards like checksums doesn’t mean that you should be reckless with your Bitcoin transactions. Stay responsible and follow basic bitcoin safety measures to ensure it never ends up in the wrong place.

If you’re storing your private keys securely, with metal, and only letting your bitcoin interact with reputable Bitcoin wallets, then you’re already on the right path.

With multisig setups, you embrace the slow, careful transfer process to ensure maximum security, But ideally, the everyday person doesn’t want to think so carefully every time they spend bitcoin.

While manual transactions may be necessary for your own circumstances, Bitcoin developers have introduced countless innovations, both on-chain and within the Lightning ecosystem that make sending and receiving bitcoin, reliably and accurately, easier and faster than ever before.

Don’t let anyone fool you into believing that bitcoin is hard to use. While its infrastructure is complex, it’s designed to simplify financial interactions, not complicate them further,

Final Thoughts

Although they’re just one component of many, checksums and all other aspects of bitcoin are equally important to making bitcoin what it is today.

Satoshi Nakamoto created an immutable, uncontrollable ledger to level the economic playing field of the world. Without these small four-byte data sets, bitcoin without checksums would’ve secured a quick downfall instead of the trillions in value it settles today.

It’s all part of maintaining the best security system that humanity has ever designed. While user error and third party attacks are still real, bitcoin ensures that we’re better prepared than ever to mitigate these risks and improve our financial lives.

FAQs About Checksums

Q: What happens if a checksum doesn’t match?
A: A checksum not matching the original data indicates that there’s a discrepancy somewhere in the data. In bitcoin, checksums verify that the addresses being entered in transactions are valid, and prevent accidental transactions to erroneous addresses.

Q: Do all Bitcoin addresses have checksums?
A: Yes. Upon generation of a new wallet address, the Bitcoin protocol attaches a checksum in order to ensure its integrity. For every wallet format – Pay-to-Public-Key-Hash (P2PKH), Pay-to-Script-Hash (P2SH), or Bech32, they all contain checksums.

Q: Are checksums foolproof?
A: Checksums are excellent at detecting your unintentional errors, but they can’t protect you against all other malicious attacks or potential device tampering. If you feel that your device is faulty, altered, or otherwise compromised, be sure to replace it with a new device directly from its vendor to be safe.