Paper Wallet: Should You Use It to Store Your Cryptocurrency?

There is an adage as old as Bitcoin that says, “Not your keys, not your crypto.” In the fast-evolving landscape of cryptocurrencies, the importance of secure storage is paramount. Amidst an increasing number of storage options for crypto enthusiasts, a paper wallet is one of the oldest ones that people use to this day.

A paper wallet, while simple, is an intriguing concept. It gives users tangible, physical means of storing their crypto offline. This approach is supposedly one of the best ways to protect your assets from hackers and preserve your peace of mind.

However, just like with any storage solution, there are pros and cons to paper wallets. In this article, we’ll explore all the benefits of paper wallets but also highlight all the downsides and risks that come with them. Let’s dive in.

What Is a Paper Wallet?

Before we get into the specifics regarding paper wallets, let’s first establish the two main types of cryptocurrency wallets. All crypto wallets can be split into two distinct groups, which are:

1. Hot wallets
2. Cold wallets

Hot wallets are connected to the internet, while cold wallets are offline. In general, hot wallets are more convenient, while cold wallets are safer. That being said, a paper wallet is one of the cold wallets.

Simply put, it’s a piece of paper with your private key written on it. Unlike hot—or even digital—wallets, which rely on electronic devices or internet connection, a paper wallet is just that—paper that you can put in a drawer.

However, you can’t simply write a seed phrase on the paper and call it a day. The process of creating a paper wallet involves generating a private key and a corresponding address, which are done using specialized software or online tools.

So, while paper wallets can be an attractive option for security-conscious users, they aren’t without potential risks. There’s a risk both when creating a paper wallet and storing it in a secure manner.

Benefits of Using Paper Wallets

The main benefits of paper wallets—when created properly—are their security and the user’s control and ownership. In essence, it doesn’t get much more secure than having your seed phrase written down offline and stored in a safe location. You’re in full control of your keys, and it’s impossible to hack a piece of paper.

Are Paper Wallets Safe?

As already mentioned, crypto paper wallets are considered safe if you create and store them properly. They offer a convenient and affordable way to lock away your Bitcoin, Ethereum, and various other cryptocurrencies.

Once you store it offline, there are fewer attack vectors for hackers to exploit compared to digital wallets or online exchanges. There’s no need for you to trust a third-party custodian to keep your crypto safe. In essence, paper wallets reduce the risk of potential security breaches to a minimum.

On the other hand, there are plenty of reasons why paper wallets aren’t considered the best or safest option nowadays and why many users avoid them. First off, there’s the issue of physical vulnerability. Paper wallets are susceptible to damage, loss, or theft, all of which can result in the loss of assets.

Then there’s the possibility of human error. Even the smallest mistake during the creation process can lead to the irreversible loss of funds or compromised security.

Finally, the biggest risk with paper wallets comes from the process of creating them. Using an online paper wallet generator is highly discouraged, as there’s always the risk of keyloggers or other malware compromising the security of your wallet.

Problems With Using a Paper Wallet

Before opting for a paper wallet for your Bitcoin or altcoins, you need to understand how to use a paper wallet and what the potential problems that come with it are.

#1. Device Security

While a physical piece of paper with your public address and private key written on it can’t be hacked, the device used to create it can. Online paper wallet generators might simply forward your seed phrase to someone else without your knowledge.

Moreover, these generators can be coded poorly. A website with a weak random number generator might create a deterministic address, making it easy for hackers to use brute force and guess your seed phrase.

The best way to ensure the security of your paper wallet is to create it on an air-gapped device. That means buying a brand-new laptop and never connecting it wirelessly or physically to any other device or network. Furthermore, you should also have a downloaded, open-source paper wallet generator that you’ve thoroughly checked and ensured its validity.

#2. Paper Wallet Storing

Another problem with paper wallets appears when it comes to storing them. Paper is prone to physical damage and can degrade in quality over time. The ink can also fade, rendering your seed phrase illegible and, ultimately, useless.

Furthermore, if you create only one copy of your paper wallet, you run the risk of losing it. On the flip side, having multiple copies increases the chance someone will find them. Some users create paper wallets and store them in safes. Others have the paper laminated to increase its longevity, though that increases the risk of a person laminating it stealing your secret key.

#3. Paper Wallet Printing

Printing your wallet is another process where you need to be careful. Since nobody should ever see your secret key, you should never print your wallet in a public copy shop or on an office printer. Still, printing it on a personal printer at home doesn’t solve all the problems, either.

Printers can be hacked, both remotely and physically. If a hacker gains access to your printer, they can find everything that you’ve ever printed, which means they can find out your seed phrase.

The safest way to go about it is to use a USB cable to connect to your printer. Moreover, you want to get the best paper possible and high-quality ink to ensure the print’s longevity. For extra security, you can even consider printing your paper wallet with invisible ink.

#4. Not Getting Change Back

Another problem with paper wallets can occur when taking coins out of them. To do that, you need to either import your keys into a software wallet or sweep them.

Sweeping is recommended, as it sends all your cryptocurrencies to a new private key connected with the new crypto wallet, emptying your paper wallet and rendering it obsolete.

Importing adds your private key to your software wallet but leaves your paper wallet functional. That way, you can use both wallets to access and transfer your crypto.

If you go this route, it’s crucial to set up a change address. If you use your software wallet to spend a portion of the funds, the rest goes to a change address. That’s because any transaction uses the entire balance. So, if you don’t set up your change address, you’ll lose your coins forever!

How to Create a Paper Wallet

There are several ways to create a paper wallet, each with pros and cons. In general, the simpler the process, the less secure your wallet will be.

#1. BitAddress

One of the easiest ways to create your wallet is by using an online generator such as BitAddress.org. BitAddress is an open-source JavaScript generator where you can generate your paper wallet in less than a minute.

You start by moving your mouse around or typing arbitrary characters in a box to generate a random Bitcoin address. That step looks like this:

After a few seconds, you’ll create an address and then be asked to choose whether you want a single wallet, bulk wallet, brain wallet, paper wallet, or more. The paper wallet creator allows you to generate multiple addresses at the same time, show or hide art before downloading your wallet, and choose whether you want BIP38 encryption. Here’s what that looks like:

However, we’ve already established that making a paper wallet online isn’t the best idea. That’s why BitAddress allows you to download the GitHub repository and run the code offline, client-side.

To ensure maximum safety, you want an operating system that’s safer from malware than Windows, such as Ubuntu. You should run it from your flash drive using software such as LiLi. Make sure that the flash drive is new or fully formatted, and print your paper wallet with a printer connected via USB.

#2. Write Down Your Own Keys

Instead of using online or offline software generators, you can create your own custom mnemonic seed phrase. There is a standard list of 2048 words, and you can pick 24. However, the process isn’t as straightforward, as not every order of words will work.

But even if it were as simple as that, this way of creating a paper wallet is highly discouraged. Humans aren’t as good at coming up with random sequences as specialized algorithms. As a result, any seed created by a user is likely much less secure than software-generated ones.

If you truly want to go this way, you can use a dice and a coin to generate a random string of words and write them down on a piece of paper.

#3. Random Key Generator

In addition to BitAddress, there are many other random key generators out there, such as:

• WalletGenerator.net
• Bitcoin Paper Wallet Generator Chrome Plug-in
• BSV Paper Wallet Generator
• BitcoinPaperWallet.com

When choosing one, you should do your due diligence. Don’t trust; verify. Half an hour of research can save you plenty of headaches down the road.

Paper Wallet vs. Hardware Wallet

When faced with a paper wallet vs. hardware wallet dilemma, the majority of users opt for hardware wallets. However, there are merits to both, and you should know the differences if you want to choose the option that suits you best.

By now, you pretty much know all the pros and cons of paper wallets. They are cost-effective and secure when done properly. Moreover, they eliminate the need for third-party custodians and allow users to remain completely anonymous.

On the other hand, the creation process requires extensive computer knowledge; there’s a possibility of human error or physical damage. Moreover, accessing your funds is less convenient with a paper wallet.

Compared to them, hardware wallets are paid solutions whose price varies depending on the brand and features. Furthermore, there’s a dependence on a device that can malfunction or become obsolete.

Still, hardware wallets offer robust security features that are often better suited for beginner—or even intermediate—crypto enthusiasts. They come with intuitive interfaces, and most of them give users the option to recover their funds in case they lose or damage their devices. Lastly, they support multiple cryptocurrencies and different blockchains.

In summary, unless you really know what you’re doing, you should go with a hardware wallet.

How to Keep Your Paper Wallet Safe

Should you ultimately decide to go with a paper wallet, here are some tips that can help you keep it safe:

• Never share your private key with anyone.
• Store your wallet in a safe and secure location, preferably in a fireproof and waterproof container.
• Consider having multiple copies hidden in different locations.
• Keep the entirety of your wallet offline. Avoid even taking photographs or digital scans of it.
• Periodically check the condition of the paper to ensure that its integrity remains intact.

Should You Use a Paper Wallet - Final Word

The general consensus is that if you need to ask this question, you should probably go with a hardware wallet. Their features, security, and user experience far outweigh the price of buying them. If you’re serious about investing in crypto and growing your portfolio, the initial purchase cost shouldn’t matter.

Paper wallets remain a solid option, but only if you are an expert. Ask yourself this: Can you examine the code of an open-source wallet generator to find out whether there are any bugs or malicious activities? If you are, more power to you; if not, you’re likely placing your trust (and the safety of your crypto) in someone you don’t know.

Key Takeaways

In conclusion, paper wallets offer a unique and appealing way to safeguard your cryptocurrencies since their offline nature provides a solid layer of security. Plus, having full control over your keys makes them an even more appealing option for privacy-concerned individuals.

Still, it’s essential to acknowledge the potential pitfalls of paper wallets. A single misstep can result in an irreversible loss of funds.

Ultimately, the choice between paper wallets and alternative storage options depends on your needs, skills, and risk tolerance. Hopefully, this article gave you enough information to make the right choice and ensure the safety of your investments!