Checksums are a type of code used in cryptocurrency addresses to ensure that payments are going to the right destination. They are also used to prevent sending or entering incorrect addresses, ensuring that assets are not lost to malicious actors. The checksum is a string of letters and numbers derived from the address itself.
It is created using a cryptographic hash algorithm, which produces a unique representation of the data set. This representation is then encoded with a data compression algorithm. The result of this compression is then converted into a series of numbers and capital letters (the checksum).
The process of creating a checksum is an effective way to verify if the address being used comes from a trusted source. Since it is impossible for two individuals to have the same address, a checksum can be used to ensure accuracy when making transfers. It is important that crypto users, especially those who are new to the crypto universe, understand the implications of checksums, as they can help make sure that funds are sent securely and correctly.
If an address does not have a valid checksum, the funds sent there will be returned to the sender’s account. Therefore, always check the authenticity of an address when making transactions.