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When adding Bitcoin accounts to your NuFi wallet, understanding how derivation paths and address types work is essential for compatibility with other wallets and ensuring proper access to your funds.
Bitcoin wallets can organize and generate addresses using different standards — known as derivation paths — that determine how your addresses and keys are structured. Additionally, these accounts may use various address formats depending on the features they support, such as efficiency improvements or compatibility with older systems.
In NuFi, you can add two categories of accounts based on:
1. Derivation path type
a) m/(84/86/49)'/0'/<account index>
Typically used by hardware wallets, and will give you the same account as Ledger Live, Trezor Suite or Bitbox app.
b) m/(84/86/49)'/0'/0'/0/<account index>
Used by software wallets, such as Xverse or Phantom.
2. Account address types
a) Combination of Native SegWit + Taproot
Native SegWit
Native SegWit is a Bitcoin address format that enhances transaction efficiency by separating signature data from transaction data. This results in smaller transaction sizes, potentially leading to lower fees and faster processing. Addresses typically start with bc1q and use the P2WPKH script type. Native Segwit derivation paths start with 84.Taproot
Taproot is an upgrade to Bitcoin that improves privacy and allows for more complex transactions. It combines multiple transaction scripts into one, optimizing blockchain space usage and enhancing privacy. Taproot addresses start with bc1p and use the P2TR script type. Native Segwit derivation paths start with 86.
b) Wrapped SegWit
Wrapped SegWit is compatible with older Bitcoin wallets that do not support Native SegWit. It wraps a SegWit transaction inside a P2SH transaction, offering some benefits of SegWit, such as reduced fees, while maintaining compatibility with older systems. These addresses start with 3 and use the P2SH-P2WPKH script type. Native Segwit derivation paths start with 49.