Paper wallets: What are they and how do they work?
When it comes to safely storing your crypto, it’s widely recommended to withdraw your coins from an exchange and store them in a personal wallet, as the crypto industry has a saying — not your keys, not your coins. When it comes to choosing the type of wallet you wish to store your crypto in, there is a wide selection, such as hot wallets or cold storage - which are also known as offline storage wallets.
A paper wallet is a prime example of an offline wallet. This guide will explain what a paper wallet is, its advantages and disadvantages, and how to make one. We will also address some methods of improving the security of your paper wallet.
What is a paper wallet?
As the name suggests, a paper wallet is a piece of paper that acts as your crypto wallet. You can consider it a non-custodial cold storage, meaning it is not connected to the internet. The “non-custodial” part means it is entirely in your care and no one else controls it.
To put it simply, it’s a physical printout that holds the details of your wallet address. It contains your private keys and public keys. Both are necessary in order to carry out crypto transactions and provide your digital signature. However, while public keys can be used publicly, private keys are for your eyes only. The paper contains two alphanumeric strings of characters and two QR codes. They are generated randomly via a key generator.
Crypto transactions typically involve encryption and decryption. Both are done via cryptographic keys. In order to access these keys, traders need crypto wallets that allow them to transact and monitor their assets. When it comes to paper wallets, traders can access these keys without needing internet access.
Paper wallets were especially popular between 2010 - 2016, as they were deemed to be a tool that was perfect for keeping peoples’ crypto safe. Back then, major crypto exchanges had their own paper wallet generator. They allowed users to print paper directly from their accounts. It was relatively simple and it was considered to be very safe. However, once more convenient wallet types emerged, paper wallets lost their popularity.
Benefits of using a paper wallet
While paper wallets are no longer as popular as before, they’re still a valid way of storing digital assets. In fact, they are considered to be one of the safest ways to store your cryptocurrencies. Below is a list of several benefits that make paper wallets worth considering even today.
Cold storage
Paper wallets are a type of cold storage, or offline storage. This means they are not constantly connected to the internet, like any hot wallet. As such, they are impossible to hack, so any cryptocurrencies you store within them will remain safe. The only danger of losing your funds is when someone gets their hands on the paper wallet.
Easy to create
Unlike the other types of offline storage — such as hardware wallets — paper wallets are very easy to make. All you need to do is use a paper wallet generator, also known as wallet key generator. Generate your key, print it on a piece of paper with the QR code, and that’s it.
Relatively inexpensive
While hardware wallets need to be purchased, paper wallets are completely free. All you need to do is print them on a piece of paper. You don’t even need to do that if you don’t want to. You can simply use pen and paper to create a wallet instead.
Problems of using a paper wallet
A paper wallet is a great cold wallet alternative to hardware, but it is not without issues of its own. None of these are major issues, nonetheless, you should still be aware of them if you wish to give paper wallets a go.
Device security
The first problem concerns the device you are using. You should download a wallet generator to your device and generate a wallet offline. However, before you do so, you should run your device through a security software scan. Any software is susceptible to bugs, viruses, and malware. This means that your device needs to be safe before you create a paper wallet.
Keep in mind that public computers are even more vulnerable than your home PC. Since cyber crimes are very common and highly sophisticated, you must do everything in your power to be safe. There are many programs out there, designed to monitor crypto use and alert hackers to opportunities. It’s therefore imperative that your device is as safe as possible.
Printing
Everyone who has ever used a printer knows how difficult they can be sometimes. It always seems that there’s always something wrong with them, from paper jams to ink spots and similar malfunctions. This could be a problem when it comes to printing your paper wallet.
Another thing to keep in mind is that the quality of paper and ink also matters. You can’t afford to lose your keys, otherwise you’ll lose all of your coins. If the ink fades over time or the paper gets damaged, you will not be able to access your crypto.
Storage
Creating a paper wallet and storing the funds within them is the easy part. The hard part is storing the paper wallet itself. Given its nature, paper wallets are primarily used for storing crypto that you bought as a long-term investment. This means that you won’t be using those coins regularly. So, in order to keep the wallet and the funds safe, you need to store the wallet carefully.
It has to be in a place where it would be protected from elemental threats. Therefore, it cannot be stored somewhere where it could be endangered by fire, water for example. It’s imperative to keep the wallet safe. If it gets damaged, faded, or becomes unreadable, your funds will be lost forever.
Are paper wallets safe?
In general, paper wallets are one of the safest ways to store cryptocurrency. That is, assuming that the paper wallet itself is kept safe. However, with the creation of more convenient solutions, paper wallets are no longer recommended. Particularly if you intend to store large quantities of digital assets.
Hardware wallets like Ledger still offer the safety of keeping your wallets offline, but in a much more convenient manner. You can plug them into your PC when you need to transfer coins in or out and unplug them afterwards.
How do you create a paper wallet?
If you still want to create a paper wallet, it’s very simple to do. Whether you wish to actually use it or just try out the process yourself, here is what to do:
Go to BitAddress. This is open-source software that acts as a paper wallet generator.
Enter random text to help generate a random private key. You can also do this by simply moving your mouse around until the generator reaches 100%.
Once you are done, select “Paper Wallet” and print out the results. After that, you can store your coins through the public address on the left.
You can also add a passphrase in order to add encryption to the wallet. This can bring additional security; you only need to tick the BIP38 box.
That’s all you need to do to create your own paper wallet. As you can see, depositing your funds only takes 30 seconds and only involves one transaction.
What can you do to improve the security of your paper wallet
In this guide, we’ve stressed several times that preserving the paper is the most important thing when it comes to keeping your paper wallet safe and secure. With that being the case, we can recommend several practices to keep your wallet as safe as possible. For example:
Get your paper wallet laminated so it doesn’t tear or fade due to the elements
Store your paper wallet inside a safe that only you can access
Make it disaster-proof by using devices like Cryptosteel — a metal casing resistant to most damaging factors
This is all you can do to protect a piece of paper with such crucial information. Most crypto users believe that paper wallets are not worth the hassle, but remember, it’s always your decision.
Should you use a paper wallet?
Paper wallets used to be a very popular way of storing cryptocurrencies, however, these days they are considered outdated, and not as practical as other solutions. Hardware wallets have mostly replaced them, as they are more durable and resistant. The only real downside that hardware wallets have in comparison with paper ones is that they are a lot more costly. With that being said, they’re not extremely expensive, and when you consider the amount of security they provide, they’re worth it.
As for paper wallets, they are extremely easy to make, but overall, they are impractical and are susceptible to damage. That makes them risky, which is why most investors stay clear of them.
FAQs
What is a paper wallet crypto?
A paper wallet is a crypto wallet that consists of your private and public keys printed on a piece of paper. Once generated and printed, this information doesn’t exist anywhere else. This makes paper wallets quite safe for storing your coins.
Can I store any crypto in a paper wallet?
No, not all cryptocurrencies can be stored in a paper wallet. In order to do this, you must use cryptos whose blockchains support the paper wallet format. Cryptos like XRP, Stellar, or Cardano are incompatible with paper wallets.
How do I access a crypto paper wallet?
To access cryptos stored in a paper wallet, you need to import its private key into a compatible digital wallet. Note that the paper wallet is no longer considered secure after doing this. You should dispose of it and create a new one if you wish to keep using a paper wallet.
What is the difference between a cold wallet and a paper wallet?
While both are used for storing cryptocurrencies offline, there are a few differences. Cold wallets have a physical form, they are easier to use, and are compatible with most cryptocurrencies. However, they both have high security, but a cold wallet costs money, and a paper wallet is easier to damage.
Is a paper wallet free?
Yes, you can create a paper wallet completely for free. All that is required is to create a unique private and public key for your wallet address. This is what you use as your digital signature when signing transactions.
Are paper wallets a good idea?
Paper wallets used to be very popular due to their safety. However, today, there are better alternatives. Paper wallets are impractical and easy to damage, meaning that you could easily lose your digital assets permanently.
