BIP 16 (P2SH)

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Bitcoin Improvement Proposal (BIP) 16 introduced Pay-to-Script-Hash (P2SH) outputs. Activated in 2013, BIP 16 was a significant improvement for Bitcoin’s flexibility, enabling cheaper, more private multi-signature transactions, greater smart contract capability, and backwards compatibility for SegWit, an upgrade which would come several years later.

According to BIP 16, P2SH outputs lock bitcoin to the hash of a Bitcoin Script. In order to spend this bitcoin, the script and any signatures it requires must be provided. P2SH addresses use Base58 encoding and begin with ‘3’.

The BIP 16 upgrade was also the subject of much controversy. It was the first major upgrade to be implemented in Bitcoin after Satoshi Nakamoto, Bitcoin’s creator, disappeared, and several alternative proposals, some with critical flaws, were almost activated instead.

Learn more about the history of P2SH activation.