Having safe storage for your cryptocurrencies is a must. Cyber attackers and potential crypto scammers that want to get hold of your assets are a constant threat, and the only way to keep your coins safe is to use reliable crypto storage.
Many exchange platforms offer built-in cryptocurrency wallets for storing Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Bitcoin Cash (BCH), and other altcoins on the platform, but these storage options are prone to security breaches since they rely on centralised company servers. When a central exchange server gets hacked, all the platform’s online storage funds are jeopardised.
This is why it’s highly recommended to use a third-party crypto wallet. Today, there are dozens of very reliable and popular wallet manufacturers, providing different wallet types – from desktop and mobile wallets to hardware and paper ones.
In this guide, we’ll take a closer look at paper wallets, how they work, why they are considered a very secure storage option and how to shift funds from and to your paper wallets.
Crypto Wallet Types
Before diving into the details about paper wallets, let’s have a quick overview of crypto wallet types. Crypto storage is generally divided into hot wallets and cold wallets.
Hot Wallets
Hot wallets are all crypto wallets that depend on a constant internet connection. The word hot signifies the connection to the web. These wallets come in the form of specialised wallet software with various cryptographic functions that protect your private keys. Passwords and recovery phrases are the most common type of security used by hot wallets.
Moreover, a good multi-currency wallet that supports a wide range of coins and tokens usually has built-in exchange functions that enable users to swap coins and purchase cryptos with their credit card, debit card, or bank account. The three most common types of hot wallets are desktop wallets, mobile wallets, and web wallets. While desktop wallets and web wallets need to be downloaded and installed on a computer or mobile device, web wallets are used directly through your browser and don’t require any downloading.
Cold Wallets
Cold wallets are a totally different class of digital wallets. The term cold storage signifies the lack of any internet connection, which is a characteristic that makes cold wallets much more trustworthy than hot wallets. When your private keys are stored offline, no one can hack your wallet and steal your assets through the web.
The two types of cold wallets are hardware wallets and paper wallets. A hardware wallet is a specialized USB device designed to safely store private keys offline, out of reach of cyber attackers Hardware wallets can be paired with hot wallets in order to give you quick access to your funds without creating a direct web connection to your coins.
Finally, paper wallets are literally pieces of paper with printed private keys. Now, let’s take a deeper look at some of their features.
Paper Wallets
Paper wallets are a straightforward concept with no complex technology behind them. They are pieces of paper that contain the private keys for your cryptocurrency. Bitcoin paper wallets are the most popular type since the popularity of paper storage was at its high in the early 2010s, when BTC was basically the only relevant crypto on the market. When the first hardware wallets were launched in 2014, the popularity of paper wallets started decreasing steadily.
Hardware storage devices like Trezor One and Ledger Nano S provided users with far more functionalities than paper wallets since users could store multiple types of cryptos on a single device and easily access their assets through the wallet’s firmware. However, paper wallets are still a very secure option in case you want to keep your BTC as a store of value, safely stashed in a discreet spot, only known to yourself.
Paper wallets have four components printed on them. The alphanumeric version of your private key and public key, along with a QR code version of each key. It’s that simple. The public key is the Bitcoin address necessary in order to import cryptocurrency to your paper wallet, while the private key allows you to send or spend your stored coins. The fact that your keys are printed on a piece of paper means that there is absolutely no chance of getting your assets stolen by a cyber attacker since there’s no way to hack a piece of paper. In terms of safety from hackers, paper wallets are a great choice.
In terms of mobility and asset accessibility, paper wallets aren’t the best option. You can’t easily access your assets and have an overview of stored funds, like when using a wallet app that you can check in just a few clicks. This is why paper wallets aren’t practical for active traders and crypto enthusiasts who often shift their cryptos from one address to another.
How to Make a Bitcoin Paper Wallet
It’s quite easy to create a paper wallet for yourself, plus it’s free of charge. All you need to do is follow these steps:
- Go to Bitaddress.org, one of the most popular BTC paper wallet generators.
- The platform will generate a totally random BTC paper wallet for you based on the movements of your mouse cursor. You just need to move the mouse around the screen until the progress bar reaches 100%. You can also enter random letters and numbers in the wallet generator textbox, but it’s easier to move the mouse until the process is finished.
- Once the progress bar reaches 100%, click the Paper Wallet option in the top section of the window.
- On the next screen, you’ll be able to choose how many addresses you want to generate. The default number of paper wallet addresses is 3, but you can change that number if you want.
- You’ll also see an option to include BIP38 encryption in your paper wallet, which will ask you to choose a passphrase to access the funds in your wallet. The passphrase is user-generated in the next field titled Passphrase. This is a great security measure that prevents anyone from accessing your funds in case they get hold of your paper wallet.
- Click on Generate and then select Print to print out your paper wallets.
How to Transfer Bitcoins to Your Paper Wallet
In order to transfer BTC to or from your paper wallet, you need to use a third-party Bitcoin software wallet. When you want to send funds to your paper wallet, you just need to enter your public key as the destination address when initiating a transaction from a software wallet such as Mycelium wallet for Android or Bread wallet for iOS devices.
Never try to manually enter your public address into your software wallet app because it’s very easy to make a typing error, which can result in sending your funds to the wrong address or an unexisting BTC address. The safest way is to scan the public key QR code with your software wallet app on your paper wallet.
Once you send coins to your paper wallet, you should check the progress of your transaction through the Bitcoin blockchain on a blockchain explorer such as Blockchain.info.
How to Transfer Bitcoins From Your Paper Wallet
Transferring coins from your paper wallet to a third-party address is initially a bit more complicated but actually really simple when you get the hang of it. The thing with paper wallets is that you should always transfer all of the stored coins to another wallet or exchange platform without leaving any assets on the wallet. This is recommended because if you only spend a portion of your BTC, the rest will be lost because that’s just how paper wallets work.
For this reason, you should always sweep your paper wallet’s balance in full. Sweeping means that you spend or send the entire balance of your wallet to a third-party address, such as a software wallet or crypto exchange.
Let’s say that you want to send your BTC from a paper wallet to your Mycelium or Bread wallet. You just need to find your Import Private Key or Hardware Wallet option and enter the paper wallet’s private key in order to send all of the stored funds to your software wallet. Keep in mind that many software wallets don’t have this option, so it’s important to use a BTC wallet that does.
When you transfer the funds to a software wallet, you can spend a portion of the coins if you want to, and you can create a new wallet for the rest.
Issues With Paper Wallets
While paper wallets are highly secure, they do have several issues. The most apparent one is the inability to safely spend a portion of your stored assets. Also, the physical durability of a paper wallet is a huge issue. In case your wallet gets torn, or you spill liquid over it, it will become useless, and you will lose your funds. If the wallet is exposed to intense sunlight over a long time, the QR codes and keys might fade out and become useless. Ultimately, if someone gets their hands on your paper wallet and you don’t have a BIP38 passphrase implemented, they will surely steal your funds.
A Few Words Before You Go…
Paper wallets are one of the most secure types of crypto storage, alongside hardware wallets, but nowadays, users mostly prefer the latter when storing large amounts of Bitcoin and other cryptos. Nevertheless, if a paper wallet is more attractive to you as a storage option, there’s no reason not to use it, as long as you understand how it works and keep it in a safe location.