Understanding Pay to Script Hash (P2SH) in Bitcoin

What is Pay to Script Hash (P2SH)?

Pay to Script Hash (P2SH) is a transaction type introduced in Bitcoin via Bitcoin Improvement Proposal 16 (BIP 16) in April 2012. It allows transactions to be sent to a script hash (address) rather than directly to a public key hash. This means that the recipient specifies the spending conditions, which are hashed to create a P2SH address. The sender sends bitcoins to this address without needing to know the complex redemption script.

Key Benefits of P2SH:

• Flexibility: Enables more complex transaction scripts, such as multisignature transactions, without burdening the sender with the details.
• Privacy: The spending conditions remain hidden until the funds are spent.
• Simplification: Standardizes the address format for complex scripts, making it easier for users.

How Does P2SH Work?

In a traditional Pay to Public Key Hash (P2PKH) transaction:

• scriptPubKey (locking script): Specifies the public key hash.
• scriptSig (unlocking script): Provides the signature and public key.

In a P2SH transaction:

• scriptPubKey: Contains the hash of the…