Paper Wallet

What Is a Paper Wallet?

A paper wallet is a method of offline cryptocurrency storage that involves printing the public and private keys of a cryptocurrency address on a physical piece of paper. This typically includes QR codes for both keys, streamlining transactions by allowing users to scan the codes instead of manually inputting lengthy alphanumeric strings.

Key Characteristics of Paper Wallets

Physical Format:

Paper wallets are entirely analog, rendering them impervious to digital hacking attempts. The printed keys enable the receipt of cryptocurrency via the public address, and transactions can be initiated by manually entering the private key or scanning the QR code.

Offline Generation:

For heightened security, paper wallets can be created offline by downloading a wallet generator as an HTML file and executing it while disconnected from the internet. This guards against exposure to online threats during key generation.

Cold Storage Solution:

As they are not linked to the internet, paper wallets are considered a form of cold storage, providing robust protection against cyber-attacks and hacking. However, they also introduce risks related to physical damage and loss.

Advantages of Paper Wallets

Security:

Being offline shields paper wallets from online hacking attempts, malware, and phishing attacks, making them highly secure for long-term storage.

Simplicity:

Creating and using a paper wallet does not necessitate advanced technology or software, offering a straightforward solution for cryptocurrency storage.

Risks and Disadvantages

Physical Vulnerability:

Paper is susceptible to damage from water, fire, and gradual degradation over time. If a paper wallet is lost, damaged, or destroyed, access to the stored cryptocurrency is permanently forfeited.

Single Use Issue:

A common misunderstanding is that funds from a paper wallet can be partially spent multiple times. In reality, when a transaction occurs, the remaining funds are sent to a change address, not back to the original paper wallet, potentially resulting in the loss of access to the remaining funds if the change address is not controlled by the user.

Technical Challenges:

Secure use of paper wallets demands an understanding of their proper management and usage, including the generation of change addresses and secure key handling, which can pose technical challenges for some users.

Modern Alternatives

In light of the risks linked to paper wallets, their usage has diminished in preference for more secure and convenient methods like hardware wallets and software wallets. These alternatives provide enhanced user interfaces, security features, and ease of use while upholding a high level of security.