Any search of storage options for crytptocurrency will return an avalanche of links and opinions, but it is easy to get confused by the terminology, and the many options are mired in seemingly unending discussions and contradictory advice over which method is best. It is especially hard to find good answers about paper wallets since they aren’t as exciting as hardware, and not as confrontational as online wallets. The good news is that in the next couple of minutes, we’ll have them figured out.
What is a paper wallet? A paper wallet is a method of storing cryptocurrency by printing or writing down the information necessary for a transaction. Luckily for us, this information is straightforward and simple, and consists of just two character strings. The first character string is the Public Address, and the second string is the Private Key. The combination of these two in a paper wallet will securely store your cryptocurrency offline and in a physical form.
Why would you use a paper wallet? A paper wallet perhaps the safest method for securing your cryptocurrency, primarily because it’s offline and doesn’t require any hardware to access. This makes paper wallets a form of cold storage as opposed to hot storage such as online wallets that require a connection to the internet and therefore are potentially at risk for malware or hacking. And unlike hardware wallets, they don’t require a large investment or reliance on the security software of a manufacturer.
When should you use a paper wallet? A paper wallet is most appropriate when you’re concerned about security, want to store your cryptocurrency for a longer period of time, or just like having possession of your cryptocurrency in a physical form. It is ideally suited for these instances because it does not require any maintenance like updates, new hardware, or upgraded security features. It is just a piece of paper that you keep locked away. But because it is just a piece of paper, it is not a convenient choice if you might need immediate access, or plan on using your cryptocurency with any frequency.
Although it is one of the safest methods, it is not without its limitations and risks. The most obvious limitation is that in a paper form it is not usable for transactions. To use the cryptocurrency, you will first have to import the details into hot storage or a hardware wallet with access to the internet. The main risk is that the information is not backed up anywhere. There is no password reset or passphrase unlock. When it is gone, it’s gone. Out of all the storage options, this is the one that requires the most responsibility.
How do you use a paper wallet? There are three stages to using a paper wallet: create, fund, and sweep. We’ll take a look at all three, but we’ll need to start by generating the public address and private key. There are several sites and programs that can be used, but these general guidelines apply to all:
- Download the program zip file, and then take your computer offline. Ideally, you would use a new computer, or a computer that has never had access to the internet, but for most of us this is unreasonable. At minimum, make sure that you are using a computer that has been recently scanned for malware and viruses.
- After you follow the instructions, you will be provided with a public address and a private key. You will see a character string and QR code for each.
- At this point, you will record the information either by printing the page, or writing down the character strings. If you choose to write down the information, be very careful and check your transcription several times because any mistake will cause you to lose your cryptocurrency. If you choose to print the page, you should connect to your printer with a cable and not wifi or Bluetooth. For extra security, it is possible to clean the cache of the printer when you are finished.
- Close your browser, and securely delete the downloaded program files from your computer. It is now safe to reconnect to the internet.
The paper wallet that you created does not yet exist on the blockchain. For it to become active, you will need to add cryptocurrency. You can send cryptocurrency to this address in the same way you would any other hot storage or hardware wallet. Once it has received the cryptocurrency, it will be possible for you to locate it on the blockchain and verify the transaction. You can do this by visiting any of the online block explorers and entering the address or the tx ID that was provided with the transaction.
Removing cryptocurrency from a paper wallet is called sweeping. This is more involved than regular transactions, but it is not difficult. When you sweep a paper wallet, you should remove all the cryptocurrency, and you should not reuse the paper wallet public address. To sweep the paper wallet, you will need to transfer the private key to hot storage or a hardware wallet.
- Download a hot storage wallet (online wallet, mobile wallet, desktop client) that offers private key import options.
- The method varies depending on the product, but you should look for wording that includes: restore, import, or create from existing. Once you have selected the option that will allow you to import your private key, you will need to enter the information either by typing your private key character string or scanning the QR code.
- You will now have access to your cryptocurrency as you would any other hot storage or hardware wallet.
- It is best to print your paper wallet on quality paper using a LaserJet printer. LaserJet printers melt toner onto the page, and Inkjet printers apply ink that can bleed or fade over time. You can also spray the document with a fixative.
- Store your paper wallet in an acid-free plastic sleeve in area safe from theft, fire, water, and insects. Archival and photo sleeves work well.
- Never share any part of your private key. Even sharing a portion of your private key can greatly degrade its security. Your private key gives anyone access to your cryptocurrency.
- Printing and storing multiple copies might decrease the risk of loss or damage, but it also increases the risk of other forms of compromise. Make sure to weigh both sides.