If you are just getting started learning about Bitcoin & other cryptocurrencies, you might have heard people discussing Bitcoin paper wallets. But what are Bitcoin paper wallets? How do they work? How can we use them and should we really use paper wallets?
Whether Bitcoin paper wallets are a great way for you to keep your cryptocurrencies secure really depends on a number of variables depending on your own situation. If you’d like to read up on some of the different factors you should consider before deciding how you want to go about holding cryptocurrencies like Bitcoin, you might want to consult the following article ‘Safest Way to Hold Your Crypto’.
What is a Bitcoin paper wallet?
A paper wallet is a cryptocurrency storage method and falls under the category of ‘Cold storage‘. Cold storage refers to the fact that your private key is being held offline, as in, not connected to the internet’.
Now, let’s take a step back and break this down a little further. In the world of blockchain assets, any cryptocurrency wallet essentially consists of a public address and a private key. The public address can be shared safely and acts as a bank account number. The private key, however, should never be shared as it acts as the ‘key’ to open and access your public address.
In essence, a Bitcoin paper wallet is nothing more than a copy of your Bitcoin public address and private key which is not stored on an electronic device like a computer, mobile phone,…
You can compare a Bitcoin paper wallet with a cash wallet you have in your pocket compared to an online bank account.
The wallet in your pocket and the cash you keep in it are immediately safeguarded by you. You act as the private key. As long as you can personally protect your wallet, no one can steal its contents. Similarly, as long as your paper wallet private key is safely guarded by you, no one can steal your Bitcoin.
Online bank accounts, on the other hand, can be hacked from anywhere in the world. Using the internet, the hacker could steal your identity, use a keylogger to get access to your online passwords, and so on. The same could happen if you would store and use or reveal your private key online or electronic devices that connect to the internet. It is actually much easier for the hacker as he only needs to see your private key, no identity theft required to steal your funds.
This is why you should definitely consider using cold storage methods to store and or transact with your Bitcoin and other cryptocurrencies! This way, no one can get hold of your private keys unless they have direct access to you.
Note: Paper wallets are only good for storing your coins, hardware wallets are recommended if you want to transact, trade your cryptocurrency.
How do you create a paper wallet?
Usually, people use ‘wallet generators‘ in order to create a paper wallet. Webpages like Bitaddress.org offer you the option to easily create a new paper wallet. The way it works is that your ‘random mouse movements’ will provide the seed for a brand new wallet consisting of a Bitcoin public address and a private key.
Are paper wallets really safe?
Paper wallets are generally considered to be a very secure way to keep your Bitcoin and other cryptocurrencies safe, however, they might not be for everyone!
Other than the obvious reason that paper is a pretty fragile material, you should also be very mindful of the process of creating a paper wallet.
We’ll go in greater detail about the potential dangers in our article “How To Create A Bitcoin Paper Wallet”, but here are a few considerations;
The paper wallet should ideally be created on a redundant offline computer. The same goes for your printer. You should consider printing the paper wallet with a printer that does not ever connect to the internet.
The reason being that you never know that there might be malware on your computer capable of monitoring your printer’s hard drive and shares it on the web the next time it comes online for example.
Also, you should also understand that ‘paper wallet generators’ are not created equal. So far, I have only heard positive things about bitaddress.org, but you should definitely do your own due diligence.
Are paper wallets practical?
Paper wallets are only really good for storing your cryptocurrency. If you want to transact or trade your cryptocurrencies, however, you’ll have to use your private key online, which in turn makes the paper wallet unusable. While it will still work as a storage method, it will no longer be ‘safe’ to use it, as you have no idea if your private key was compromised or not.
So, in other words, while you can send cryptocurrencies to the public wallet address as many times as you’d like, you should only get the funds out once.
Can you use one paper wallet address for all cryptocurrencies?
No! It is very important not to think that you can just send any crypto to any paper wallet. Depending on the cryptocurrency in question, you’ll have to use one wallet generator or another. In this case, we created a Bitcoin wallet address. You should only use it to store one kind of Bitcoin at the time, whether BTC, BCH, BSV, or whatever other compatible Bitcoin out there. Consult the wallet generator for information about the compatibility of the cryptocurrency you’d like to store on a paper wallet.
Let’s have a closer look to what a paper wallet looks like…
Hereunder you can find an example of a paper wallet created with bitaddress.org. You can easily try it for yourself. Just navigate to bitaddress.org. Once there, start moving your mouse around the screen until the generator marks 100% and it will reveal the newly created Public Bitcoin address & the Private Key.
Now, of course, you have to remember that while you can easily play around with these wallet generators online and create as many paper wallets as you want. If & when you really want to create a paper wallet for your long term coin storage, you should follow the guidelines in our upcoming tutorial on how to create a Bitcoin paper wallet safely!
If you are planning to play around with these wallets, it is recommended that you try them out first with some very small quantities. If you use a low cost transaction Bitcoin like Bitcoin Cash or Bitcoin BSV, you could send as little as one dollar cent 0.01 USD or Euro to these addresses from a mobile app for example and test out how you can redeem (sweep) the money on the address. If you use the BTC network to test it out you’ll have to accept paying high transaction costs.