BIP 16 (P2SH)

BIP 16 defined pay-to-script-hash, or P2SH, a transaction type activated in April 2012 that lets bitcoin be sent to the hash of a script rather than to a public key. P2SH created the familiar addresses beginning with 3 and made complex spending conditions, especially multisignature, practical for ordinary users.

Why it matters

Before P2SH, anyone wanting to receive funds under custom conditions, such as requiring 2 of 3 keys to spend, had to give payers the entire script, which was long, fragile, and shifted fees onto the sender. P2SH reversed the burden: the recipient shares only a short hash, and the full script is revealed only when the funds are spent. That single change unlocked the multisig custody industry, from corporate treasuries to collaborative cold storage, and later provided the compatibility path that let SegWit addresses work with older wallets.

How it works

A P2SH output commits to the 20-byte hash of a redeem script. To spend it, the owner presents the actual script plus whatever signatures it demands; nodes hash the script, check it against the commitment, then execute it. The upgrade deployed as a soft fork, since old nodes saw P2SH spends as automatically valid, and it activated after a contentious debate with a rival proposal, an early demonstration of how bitcoin's rules change only by broad agreement. It remains a milestone in the argument that bitcoin can evolve meaningfully without breaking its guarantees, a property gold gets for free by never changing at all.