Understanding Crypto Addresses and Their Various States
Addresses are very essential for the storage and transfer of digital assets through a blockchain network in the crypto space. Its importance stretches to providing users with unique identities and promoting an effective transaction for payments between users.
It is crucial to understand the performance and current state of a crypto wallet while its being constantly used to carry out transactions, as this could lead to acquiring an all-inclusive information about the ecosystem, the users, and its long-term feasibility grounded on historical statistics.
There are three main states that crypto addresses can be in and it can change over time depending on the transactions that have occurred using that address the three main states include: Unspent, Spent, and Unused.
Crypto addresses can be said to be similar to bank account number. You can not transfer or receive fiat currency through your bank without the sender having your bank account number. In like manner, a crypto address is used to send and receive digital currencies in the crypto space.
We would go ahead to discover what crypto addresses are, how they work, their importance and other things involved in this article.
What Is a Crypto Address and How Does a Crypto Address Work?
Simply put, a crypto address is a unique identifier that performs as a virtual address for transactions in the crypto space and is likened to an email address, or actual address.
It is crucial to note that the crypto address is meant to be used once in a particular transaction, which goes on to mean that it is not a permanent address.
A crypto address, also known as a public or private address comprises of a unique random string of alphanumeric characters that is used to receive and send cryptocurrencies and is linked to specific blockchain network such as Ethereum, Bitcoin etc.
Crypto addresses represent the location of a wallet on the blockchain where a particular cryptocurrency is deposited. Crypto addresses differ depending on the particular cryptocurrency used, while Bitcoin addresses start with “1” or “3”, Ethereum addresses start with “0x”.
Having a crypto address is vital in buying, trading, and exchanging every cryptocurrency. Although crypto addresses are public, most of the addresses are anonymous as the owner may not associate his real name to it.
To generate an address on Bitcoin for example, the user needs to log on to Bitcoin trade page and click the ‘Generate BTC address’ button. Once this is done, it becomes permanent for your account along with the QR Code, this also applies to all cryptocurrencies.
So, if a user wants to send crypto to another user’s wallet, he’ll have to enter their wallet address, either by pasting it into his own wallet app’s “send” field or by scanning the QR code provided by the receiver and then click “send” to initiate the transaction. The copying/pasting or scanning the QR code as provided by digital wallets and platforms guarantees accuracy while trying to carry out a transaction.
How to Find/Locate My Crypto Wallet Address?
Although there are general steps to follow while trying to locate your wallet address, the process will majorly depend on the specific cryptocurrency and wallet you are using.
Firstly, the user needs to log on to his computer wallet in order to locate his wallet address. After which he goes on to find the particular cryptocurrency address, he needs. Most wallets support multiple cryptocurrencies, so it is important for the users to specify the address of the particular cryptocurrency they want to receive or send.
The user then goes further to click on “Receive” or “Deposit” to find his wallet address. As soon as the address is located, the user can copy it to his clipboard or write it down.
One has to be very careful in order to copy the entire address correctly, as a little error can lead to loss of funds. the wallets address can come in form of a scannable QR code or a string of alphanumeric characters.
It is important to keep this address private and only share it with trusted third parties to avoid scams and cyberattacks.
The Various States of a Crypto Wallet Address
To successfully determine the state of a wallet address, one has to focus mainly on the last time the address was used to either send or receive cryptocurrencies. The states of a wallet address can also change depending on its usage, purpose and other factors.
Depending on their current state, crypto wallet addresses fall under three extensive categories, namely: Active, New and Dormant addresses.
The present state of the crypto addresses aids in grasping the general activity of the network. This information delivers an in-dept understanding into the network participation and support from other crypto investors. The increase of number in both active and new wallet addresses suggests that the system is thriving.
We would go further to discuss the different states of a crypto wallet address below:
Active addresses
This definition can depend on the cryptocurrency network involved and the wallet provider, as some networks may regard an address active if it has had a transaction within the past 30 days, while others may require a transaction within the past 90 days.
However, an active crypto wallet address refers to an address that has been recently used to send or receive cryptocurrency. This simply means that an address is considered active if it has had at least one transaction logged on in the blockchain within a certain period of time.
Active addresses are generally considered to be a measure of the total activity on a crypto network. An increased adoption and usage of the network is noted when a greater number of active addresses are recorded, while the reverse is the case when a lower number is indicated.
For a wallet address to be tagged ‘active’, such address must take part in an on-chain transaction and not off-chain transaction as they are termed, ineligible to be regarded as active addresses.
Now, what do we mean by on-chain and off-chain transactions?
On-chain transactions are transactions that are directly recorded on all blockchain network which includes, consortium, private, public and hybrid blockchains. When a user sends or receives cryptocurrency from one wallet address to the other, the transaction data are broadcasted to the network, confirmed by the nodes in the network, and then added to the blockchain as a new block.
On the other hand, off-chain transactions occur outside the main blockchain network. Although they are recorded in the same way as on-chain transactions, the details or data are not added to the main blockchain but on a separate network layer that is built on top of the main blockchain.
They depend on standard P2P transmission methods like switching private keys and linking them to new wallets.
Does price crash lead to fewer active addresses?
Generally, the connection between the price of a cryptocurrency and the number of active addresses is an intricate one that depends on a number of factors such as market sentiment, investor behavior, and network adoption. Regardless, a price crash can lead to fewer active addresses.
With the news of the price of a cryptocurrency crashing, a lot of investors may panic and sell off their holdings, which can result to fewer active addresses in the network.
There is another result this could lead to also. When the price of a cryptocurrency crashes, it could favor investors who were initially priced out of the market. These investors may start buying the cryptocurrency, leading to an increase in the number of transactions and active addresses as well.
The answer to the above question is Yes. A lot of investors might be judged as acting rashly when the price of a cryptocurrency falls by exiting and selling off their holdings and converting it to actual money to avoid losses during the crash. In the middle of the crash and market meltdown, fewer active addresses are unavoidable.
An instance of a price crash that led to fewer active addresses was the market crash in late 2018 and early 2019. This happened when the price of many cryptocurrencies, including Bitcoin, Ethereum, and Ripple, dropped significantly, with some losing more than 90% of their value.
The price of Bitcoin for example, was at its peak in January 2018 with over 1.2 million daily active addresses on the network. but by January the following year after the market crash, the number of daily active addresses had dropped to around 300,000.
New Addresses
A new address in the crypto world refers to generating a new wallet address over an active blockchain. By employing a combination of private and public keys, a crypto address is secured and linked algorithmically to the matching wallet depending on the specific blockchain.
Due to this, sending TRX-20 tokens to an address that only accepts ERC-20 tokens jeopardizes with the possibility of the sender to get their money back.
However, by including a supported smart chain network to that wallet, it would be possible to recover the assets if tokens are accidentally sent to a supported wallet.
To generate a new crypto address, one needs to have an active wallet, which can be acquired through wallet service providers, including exchange, software and hardware wallets.
A new crypto wallet address is like a clean slate, as it is devoid of previous transactions. In few cases, crypto exchanges create new addresses on their own following each successful transaction.
By doing this, they preserve anonymity by preventing the other users from searching previous transactions or following the funds. It is pertinent to note that a new address can likely transition from being inactive to active but highly impossible to do the opposite.
Dormant Addresses
Different cryptocurrencies and their blockchain protocol might determine the exact definition of a dormant address, as the length of time that an address must be inactive before it’s termed ‘dormant’ varies.
Generally, a dormant address refers to a digital wallet address that has not been involved in any out-going or in-coming transaction for a prolonged period of time, and being dormant doesn’t mean it cannot hold cryptocurrency.
Usually, an address is considered dormant if it has been inactive for several months or more. Being inactive means that no activity or transaction has been associated with the particular address, for a definite period of time.
Key Differences: New Address Vs. Active Address
Determining Active Vs. New Crypto Addresses
Over time, crypto addresses have become a yard stick to gain in-depth knowledge of the network and measure the activities of the participants as it regards to the network.
Right from the time its being created, an address is considered new until it becomes an active participant in a successful transaction. Depending on the time frame its being carried out and the particular network involved, a successful transaction can either have an active or an inactive state.
As we discussed earlier, only an on-chain transaction can be considered for determining active addresses on a blockchain network.
Off-chain transactions are not recorded over the blockchain and as such, cannot be considered for determining active addresses. Active users on the network are represented by the active addresses. Regardless of a certain address’s active participation in two or more successful transactions, it is only counted once overall for any given time frame.
