What are ‘Change Addresses’?
Have you ever examined your Bitcoin receiving addresses on a blockchain explorer like www.blockchain.com and found that the balance doesn't add up to the total displayed by your Exodus Bitcoin wallet?
Don’t worry! There’s nothing wrong with your wallet. Your funds are safe. Your wallet’s total balance is actually the balance of all its addresses, which includes receiving addresses and change addresses.
BTC, LTC, DASH, DCR, BCH, BTG, and BSV each have multiple change addresses that are managed by your wallet. To understand what change addresses are, we first should understand the concept of change.
What is Change in Bitcoin?
Bitcoin is similar to physical cash in the way that it works.
For example, let’s say you are paying for a meal, and it costs $20. You reach into your pocket and pull out a $50 bill that you hand to the waiter, who returns with $30 in change, which you then put in your wallet.
Bitcoin works in a similar way - any BTC you’ve received in your Bitcoin wallet are like “bills” waiting to be spent (the technical term for this is unspent transaction outputs, or UTXOs).
Let’s say in the above example of paying for a $20 meal, instead of paying with cash, you pay with Bitcoin. (For the sake of simplicity, let’s say that $20 = 20 BTC)
All the BTC you’ve ever received (but never spent) - UTXOs - add up to 50 BTC. However, you can’t just “deduct” 20 BTC from your Bitcoin wallet and be left with 30 BTC. This would be more like a debit card. Like we said, Bitcoin is more like physical cash, or in this case, digital cash. As with cash, you pay with whatever “bills” (different amounts of BTC you’ve received but haven’t spent) that you have.
For example if you have 1 “bill” or UTXO of 50 BTC, you would spend all of this BTC and receive 30 BTC (minus network transaction fees) in a change address.
In the early days of Bitcoin, users had to specify a change address each time they weren’t spending their entire wallet balance (and thus receiving change).As you can imagine, this led to a lot of users losing Bitcoin because they accidentally sent their change to the wrong address or one that they didn’t control.
Want to see all your addresses? You can export the addresses for each asset from the asset menu.
Why Not Receive “Change” to The Same Address?
Now, you might be thinking: This is really confusing, why not receive change to the same Bitcoin address?
Change addresses are important for user privacy. The blockchain is viewable by anyone with an Internet connection. To preserve some degree of anonymity, features like change addresses are needed, otherwise everyone would easily know everyone else’s entire financial history, which is something most people don’t want.
For example, if a transaction for 1 BTC moves a 2 BTC UTXO from Address X to Address Y, and the 1 BTC of change is returned to Address X, it would be obvious that Address X paid Address Y. On the other hand, if the 1 BTC of change is returned to a change address, Address Z, it wouldn’t be clear if the original payment of 1 BTC was meant for Address Y or Address Z, since both received 1 BTC.
Finally, the next time you check the balances of your receiving addresses and see the balances don’t add up to what’s shown in your wallet, you’ll know that you don’t need to worry. Your assets are tucked away safely in change addresses that not only allow you to receive change but also enhance your financial privacy.