In Bitcoin and blockchain transactions, different types of address formats dictate how funds are spent and validated. Two fundamental transaction types are Pay-to-Public-Key-Hash (P2PKH) and Pay-to-Script-Hash (P2SH). These serve distinct purposes, impacting security, flexibility, and usability in Bitcoin transactions.

Pay-to-Public-Key-Hash (P2PKH)

P2PKH is the most common type of Bitcoin transaction. It ensures that only the owner of a private key corresponding to a given public key can spend the associated funds.

How It Works

1. Sender’s Perspective:
   
   • The sender generates a Bitcoin address from the recipient’s public key hash (hence the name "Pay-to-Public-Key-Hash").
   • This address is a hashed version of the public key, ensuring an additional layer of security.
   • The funds are sent to this address.
2. Recipient’s Perspective (Spending the UTXO):
   
   • To spend the received Bitcoin, the recipient must provide:
     
     • Their public key
     • A valid digital signature created using their private key
   • The network verifies that the public key hash matches the original address and that the signature is valid before allowing the transaction.

P2PKH Script

Bitcoin transactions use a scripting language called Bitcoin Script. The standard script for a P2PKH transaction looks like this:

Locking Script (ScriptPubKey - UTXO Creation)

OP_DUP OP_HASH160 <PublicKeyHash> OP_EQUALVERIFY OP_CHECKSIG

• OP_DUP: Duplicates the public key provided during spending.
• OP_HASH160: Hashes the public key using SHA-256 followed by RIPEMD-160.
• <PublicKeyHash>: The hashed version of the recipient’s public key.
• OP_EQUALVERIFY: Ensures that the provided public key matches the expected hash.
• OP_CHECKSIG: Verifies the digital signature using the provided public key.

Unlocking Script (ScriptSig - Spending the UTXO)

<Signature> <PublicKey>

• The spender provides the digital signature and the public key, proving ownership.

Advantages of P2PKH

Security – The actual public key is not revealed until the transaction is spent, reducing exposure to quantum computing attacks.
Widely Supported – Almost all wallets and services support P2PKH.
Efficient – It keeps transaction sizes relatively small compared to more complex scripts.

Pay-to-Script-Hash (P2SH)

P2SH is an advanced transaction type that allows Bitcoin addresses to be generated from a script hash instead of a public key hash. It provides flexibility by enabling complex locking conditions, such as multi-signature transactions, timelocks, and smart contract-like functionalities.

How It Works

1. Sender’s Perspective:
   
   • The sender only needs to send Bitcoin to a hashed script (redeem script hash) rather than dealing with the actual script.
   • The sender does not need to know the script details—only its hash.
2. Recipient’s Perspective (Spending the UTXO):
   
   • To spend the Bitcoin, the recipient must provide:
     
     • The actual script that was hashed (Redeem Script).
     • The necessary data to satisfy the script’s spending conditions (e.g., signatures in a multi-signature setup).
   • The network checks if the provided script matches the stored hash and whether the script conditions are met.

P2SH Script

A P2SH transaction moves complexity from the sender to the receiver.

Locking Script (ScriptPubKey - UTXO Creation)

OP_HASH160 <RedeemScriptHash> OP_EQUAL

• Instead of locking funds to a public key hash, this locks them to a redeem script hash.

Unlocking Script (ScriptSig - Spending the UTXO)

<DataToSatisfyScript> <RedeemScript>

• The spender provides the script itself (which must hash to the expected value) and any required data.

Example: Multi-Signature with P2SH

One common use case for P2SH is multi-signature (Multisig) wallets, where multiple private keys are required to authorize a transaction.

Example: A 2-of-3 multisig wallet (two signatures out of three keys needed) has the following Redeem Script:

OP_2 <PubKey1> <PubKey2> <PubKey3> OP_3 OP_CHECKMULTISIG

• OP_2: At least two signatures required.
• OP_3: Three possible public keys provided.
• OP_CHECKMULTISIG: Verifies the required number of valid signatures.

The Locking Script (P2SH format) will be:

OP_HASH160 <RedeemScriptHash> OP_EQUAL

When spending, the script must be revealed along with at least two valid signatures.

Advantages of P2SH

Flexible – Enables complex spending conditions like multisig, timelocks, and conditional payments.

More Sender-Friendly – The sender only needs to send funds to a simple Bitcoin address (script hash).
Enhanced Security – The full script remains hidden until the transaction is spent, reducing attack vectors.

Key Differences Between P2PKH and P2SH

P2PKH and P2SH differ in their structure, security, and use cases. P2PKH (Pay-to-Public-Key-Hash) is the traditional and most widely used Bitcoin transaction type. It locks funds to a hashed public key, requiring the recipient to provide their public key and digital signature to spend the transaction. This method is simple, efficient, and primarily used for standard wallet transactions.

On the other hand, P2SH (Pay-to-Script-Hash) allows for more complex spending conditions by locking funds to a script hash instead of a public key hash. This makes it ideal for multi-signature wallets, timelocks, and other smart contract-like conditions. Unlike P2PKH, where the sender deals with a public key hash, P2SH shifts the complexity to the recipient, who must provide the full redeem script and necessary data (such as multiple signatures) to unlock the funds.

Address formats also distinguish the two: P2PKH addresses start with "1", while P2SH addresses start with "3". In terms of security, P2SH hides the full script until the transaction is spent, making it more flexible but slightly larger in transaction size compared to P2PKH. Ultimately, P2PKH is best for standard transactions, while P2SH is designed for advanced Bitcoin functionalities that require custom spending rules.

Conclusion

Both P2PKH and P2SH play crucial roles in Bitcoin transactions. P2PKH is ideal for simple payments, while P2SH is powerful for more complex use cases like multi-signature wallets and smart contracts. Understanding these transaction types helps developers and users interact securely and efficiently with Bitcoin’s scripting system.