In the broadest sense, a cryptocurrency wallet is a digital or physical mechanism that you can use to send, receive and store various cryptocurrencies. When people talk about bitcoin wallets, they are normally referring to a web interface, software, app or piece of hardware that looks after their private keys. Users of these types of wallets don’t need to record their public/private key pairs, as this is all done for them.
Paper wallets are different in that they are simply a physical print-out recording a specific pair of public and private keys. Anyone who has access to this key pair controls the bitcoin (or other cryptocurrency) that is located at the respective public address. Unlike their digital counterparts, paper wallets are not connected to the internet, which makes them almost impossible for hackers to break into when stored securely.
This guide covers the benefits and security precautions that come with using paper wallets, how to make a paper wallet, and what you need to know when sending, storing and receiving bitcoin on paper wallets. But first, let’s take a step back and look at the role that public and private keys play in the world of cryptocurrency.
What is a public/private key pair?
At the core of any cryptocurrency is the ledger, otherwise known as the blockchain. This is a public record of information that denotes every transaction, creation of new coins, contract execution and other actions that have been taken since the start of the blockchain.
In the case of bitcoin, the blockchain records which addresses have received bitcoin as a result of mining new blocks, which addresses this mined bitcoin has then been sent to, and a range of other metadata.
When a blockchain explorer calculates your bitcoin balance for any given address (note: addresses and public keys are two different words for the same thing), it simply scans the history of the blockchain and calculates the amount of bitcoin received less any amounts spent.
In this manner, your public key is similar to a bank account number – anyone can send bitcoin to your address, but only you have the ability to send transactions from this address. Public addresses are available for anyone to view using a blockchain explorer. Although no bitcoin addresses are specifically tied to an individual as is the case with bank accounts, once somebody knows your bitcoin address, they are able to view how much bitcoin you have, the source of these funds, and any transactions you have made from this address (example).
The private key is a password. When a public and private key are presented together, transactions can be signed and the keyholder is considered to have the authority to spend bitcoin from that address.
At this point, you’re probably wondering what happens if someone discovers your public key. Yes, they would be able to trace all of the money flows relating specifically to this bitcoin wallet – where your bitcoin came from, where you have sent bitcoin etc. Software and web wallets manage the private keys and generally ensure that each new incoming transaction is sent to a new address for privacy and security purposes.
So, to recap on where public and private keys fit into the world of cryptocurrency:
- Bitcoin (and other cryptocurrencies) are digital tokens that exist solely on blockchains.
- The blockchain maintains the records of who owns which bitcoin.
- Bitcoins are held at public addresses, otherwise known as public keys.
- To access these tokens, the owner needs to present the public and private keys together, which unlocks the ability to spend bitcoin held in that wallet.
- Using a blockchain explorer, anyone can view a bitcoin address and see how many bitcoins are stored at the address, where it has come from, and any outbound transactions made from that address.
- A paper wallet is simply a printout of the public and private keys.
- Most people use digital wallets that manage multiple public and private keys. When done right, this method improves privacy and security. However, it puts trust in the wallet provider – through using paper wallets, you can have full autonomy over your private keys.
How do I make a paper wallet?
There are many ways that you can generate a paper wallet containing your public and private keys. Online wallet generators such as Bit Address, Bitcoin Paper Wallet and Wallet Generator are extremely simple to use – see this guide for more information.
Most web and software wallets offer the ability to make paper wallets, or at least view your private keys (Electrum has paper wallet functionality built into the desktop application, and Blockchain.com also provides the ability to print out your wallet details).
6 simple steps to create a wallet using an online wallet generator:
- Make sure that your computer is free from viruses, malware, ransomware and bugs.
- Navigate to the correct website and disconnect your device from the internet before generating a wallet.
- Create your randomly-generated wallet.
- Physically connect your computer to the printer, and make sure that the printer is offline before printing your wallet.
- When printing, consider making multiple copies – it doesn’t take much more effort to print 5 wallets compared to just one.
- Close the wallet generator, clear your browsing history, delete any images or files related to the wallet and remove any memory recordings from your printer (if your printer has memory capabilities).
- Store your wallet and backups in a secure place (or multiple places!) and consider laminating your wallet if it is going to be held for an extended period of time or potentially exposed to the elements. When storing secure backups elsewhere, make sure that they are with someone you trust.
Although this method is not perfectly secure, it is convenient for handling smaller amounts of cryptocurrency. Further security precautions include downloading the wallet generator code onto a clean USB drive, using checksums to verify the integrity of the software, generating the wallet on a computer that has never been connected to the internet and using an untouched printer.
If you want to securely create paper wallets on an ongoing basis, consider using the USB-based MyCelium Entropy wallet generator. Some people simply generate a range of different public/private keys, then choose 3-5 and physically write them on a piece of paper. This prevents security risks that come with using printers that have the potential of being compromised. However, if you use this method, make sure to record every character accurately (especially similar characters such as ‘o’ and ‘0’).
What makes your paper wallet so secure is that it is completely offline and out of the reach of hackers – if your keys are secure, then your cryptocurrency is secure.
How do I send and receive bitcoin using a paper wallet?
Whilst it is easy to hold and receive bitcoin with a paper wallet (simply provide your public key), spending it can be a little challenging. This is because you need wallet software to interact with the blockchain and broadcast transactions.
This is one of the major downsides that comes with using paper wallets. They are great for long term cold storage, but everyday usage is a bit of a nuisance.
Most people with paper wallets send their bitcoins to a web or software wallet prior to spending them. This guide explains how to import your paper wallet key pair into a digital wallet. Before importing your keys into a digital wallet, remember to check your balance using a blockchain explorer first.
Once you have imported your paper wallet, make sure to sweep all of the funds from your old public address and deposit them into a new bitcoin address. Never leave some of your coins on a paper wallet, as this creates a security risk for your remaining coins.
Benefits and drawbacks of using a paper wallet
- Easy and comfortable to use once set up.
- Helps people to understand how the blockchain works.
- Great for beginners that are getting into bitcoin.
- Gives cryptocurrencies a physical feel, which helps people to conceptualize bitcoin.
- When generated and stored securely, paper wallets are one of the safest ways to invest in bitcoin.
- Very difficult to hack.
- Difficult to send money from paper wallets and reliant on other wallet providers to broadcast transactions.
- If your paper copies are damaged or destroyed, your bitcoin is lost forever.
- Paper wallets are normally stored unencrypted, meaning that if someone gets hold of the paper, they can then control all of your bitcoin.
Other types of paper wallet
In the early days of bitcoin, large amounts were stored on paper wallets, and it was seen as the norm. Hackers weren’t as much of a problem, and the people that used bitcoin were very much computer literate. During the past few years, the entire cryptocurrency space has evolved a great deal. New investors and projects have accelerated the pace of adoption and innovation, attracting fresh investors that aren’t as security conscious as earlier adopters.
If you’re looking to store large amounts of cryptocurrency for extended periods of time, it’s worth considering investing in a hardware wallet.
But what other types of paper wallets are available?
Physical bitcoins are a novel alternative to the traditional paper wallet. They contain a public address and a private key (which is normally hidden behind a tamper evident seal). During recent years, these gold and silver-plated coins have become a collector’s item for cryptocurrency enthusiasts.
The Casascius 1000btc gold coin is an extreme example of how much value a paper wallet can hold. During January 2018, this coin was worth over $15 million USD, possibly making it the most valuable physical coin today.
HD wallets (deterministic wallets) are made up of a recovery seed phrase that can be used to generate unlimited pairs of public and private keys. Most software wallets are set up in this manner – instead of recording private keys, you remember a 12 word phrase which can be entered in any compatible wallet software to access all of your key pairs. As a paper wallet, this is an uncommon alternative. However, it does make it easier to move your bitcoins when you’re ready to dispose of them. This forum post explains more details about making HD paper wallets.
People often use password managers instead of paper wallets. By storing your public and private keys in a managed digital vault, you can access them from anywhere in the world with high levels of security. Of course, there are benefits and drawbacks to every type of storage, and you need to weight them up in relation to your specific circumstances before deciding how to store your keys.
Paper wallets: a physical token for a digital world
“Paper wallets are more welcoming to individuals who have been handling fiat cash and credit cards for most of their lives. The similarity that a paper Bitcoin wallet has to fiat cash gives people a certain comfort that other wallets simply can’t provide. And, once people get used to handling paper wallets and become acclimated to the Bitcoin environment, they will feel more ready to graduate on to software and hardware wallets.”
Although paper wallets are often viewed as outdated compared to many of the modern alternatives, they do provide a secure way to maintain access to your bitcoin outside of any device, cloud service or app. When configured correctly, they are extremely hard to hack.
Paper wallets are also great for people who are just ‘dipping their toes in the water’ with bitcoin, and want to understand how it works before investing more significant sums.
They are also useful for giving bitcoin as gifts… Next time you need to buy for that person who has everything, perhaps a paper wallet might be a good idea?