Many people say that if you don’t feel comfortable in digital reality, you should avoid dabbling in cryptocurrency. Yet, there are quite a number of seasoned bitcoiners who keep their private keys on paper.
On second thought, the paper may be an ultimately secure method for storing digital keys as it has contact with no perils lurking online. In the crypto lingo, this storage approach is called paper wallet and it’s the oldest form of cold storage.
However, given the blooming industry of technically advanced digital storage, paper wallets are considered obsolete and inflexible. However, you still have the option to print out all data that proves ownership over your Bitcoin. For that reason, we’ll discuss paper cryptocurrency wallets through the lens of other wallet types and provide you with a compact step-by-step guide on how to create one.
What Is a Cryptocurrency Wallet?
Cryptocurrency wallets are specifically designed programs that store information about your Bitcoin or another digital asset in your possession. As you can see, we don’t say that digital wallets store your coins. That’s because cryptocurrencies don’t travel outside their natural surroundings — the blockchain.
So, since you don’t have a representation of your crypto in a digital format, the only proof of ownership is your private key. That’s the primary job of crypto wallets — to generate a set of private and public keys and, thus, enable you to manage your holdings.
Private and public keys work in the same principle as your email public address and its corresponding password. Similarly, the public key makes the address that serves as a departure or destination point when sending or receiving crypto. You’re free to give it to other users so that they can find you, but even if you don’t, the address is publicly displayed on the blockchain ledger.
Private keys stay with you — they unlock your coins. Without private keys, you can’t sell, cash out, or otherwise transfer your coins. In other words, without private keys, your crypto isn’t yours. That’s why the real battle between wallets is over providing a safer environment for your private keys.
However, nowadays, wallets come with extra built-in functionalities, such as advanced transfer options, swap platforms, possibilities for fiat purchases, and many more. As a result, for the majority of traders, ease of use is equally important as safety. Paper wallets have none of these options for extra functionality, but let’s see how they compare with other wallet types in the “care” of your private keys.
Types of Crypto Wallets
You can find nearly 100 different crypto wallets in the current crypto market, each with its unique design and feature set. Yet, we can easily divide wallets into two main groups: hot and cold wallets. The first group accommodates web and software wallets — all of which need an internet connection to execute their main functions. Paper wallets belong to cold storage together with hardware wallets because of their ability to store private keys offline.
Web or online wallets allow easy access from any device — just like any other interactive platform you use on a daily basis. They usually come as custodial solutions, part of users’ accounts on a centralized crypto exchange. This pattern appears to be very handy — you can store your digital currency on the very same “spot” you’ve bought them from.
Everything sounds perfect except for the fact that your private keys stay with the exchange. This means that if anything happens to the exchange, your holdings will go away with it. Crypto exchanges are regulated companies nowadays, so there is a possibility for your funds to be settled after a hack attack or exchange bankruptcy.
However, all that uncertainty isn’t worth the convenience. That’s why in-exchange web wallets aren’t a recommended environment for your crypto assets in the long run.
The group of software wallets consists of mobile and desktop wallet apps. In terms of design and utility, they are also exceptionally intuitive and feature sleek navigation. While desktop apps open larger room for in-wallet charting tools and market analyses, mobile wallets are a perfect choice for everyday crypto purchases.
Both wallet versions allow you to store your private keys within the device. That is equally good and bad. While you don’t have to rely on the exchange’s servers, mobile phones and computers are highly prone to malware attacks and physical damage. Ultimately, wallet apps are a far safer option than custodial platform apps.
Hardware Wallets (Cold Storage)
Hardware wallets are physical devices containing their own software to accommodate your private keys. You still need a computer with a compatible software program to handle this thumb-drive device, but the private keys don’t establish any connection with the computer. For that reason, hardware wallets are the safest way of storing crypto as offline depositaries won’t let hackers trace your private keys.
However, hardware wallets aren’t free — their prices range between $50 and $300, depending on the model and the features. Some of them make a really sophisticated piece of hardware with large screens, BlueTooth connectivity, and memory to store Bitcoin and an unlimited number of separate wallets.
The best scenario is to combine the security of hardware walletс with the ease of use of compatible hot wallets for a full crypto experience.
What Is a Paper Wallet?
Paper wallets resemble nothing we described above, except maybe the offline storage they have in common with hardware wallets.
Paper wallets are printed pieces of paper containing your wallet address (compressed version of the public key), your private key, and a QR code for executing external transactions. Needless to say, these static data need a software interface to make transfers possible and to allow you to check your balance and top up your crypto holdings.
For this reason, we can’t make a direct comparison of paper wallets against other types of crypto wallets. At some point, we can even say that paper wallets are an extinct storage method now that the digital storage industry regularly throws out an abundance of upgrades and fancy tools.
However, in terms of security, paper wallets beat even hardware wallets since paper isn’t some kind of machinery that could “die.” Well, paper can also get damaged but in a physical way — something that you have control over. As long as you keep the paper wallet outside the reach of water, fire, and other people’s hands, you can be sure that nobody will get unauthorized access to your crypto coins.
Before we start with the how-to-create lesson, note that paper wallets are available only for Bitcoin (BTC) and a handful of old-gen altcoins like Ethereum (ETH), Litecoin (LTC), and Bitcoin Cash (BCH).
How to Create a Bitcoin Paper Wallet?
Creating a paper wallet is a one-minute job if you go the simpler way. There is a more advanced option as well, but either simple or advanced, creating paper wallets doesn’t require any special skills.
You can create a paper wallet by using a wallet generator available online for free. There are a few popular generators you can rely on, but for the purposes of this article, we’ll use BitAddress to create a Bitcoin paper wallet.
The Simple Method for Creating a Paper Wallet
To create a paper wallet follow these simple steps:
- Visit BitAddress.org and hover around with the mouse to add randomness or start typing something in the empty field on the top of the page to initiate the process.
- Tick the paper wallet button and the generator will create the set of keys for you.
- To ensure full security, find the archive option and save the result first. Then, disconnect your Wi-Fi or a LAN connection and visit the site again to print out the wallet.
- Optionally, you can encrypt the Bitcoin address with passphrase for added security. Navigate to the BIP38 encryption box and the paper-wallet generator will immediately convert your keys into a Base58Check-encoded string of random characters.
That’s all! Your job is to find a safe “deposit box” for “hiding” this paper.
The Advanced Method for Creating a Paper Wallet
Many tech-savvy users claim that this approach leaves digital footprints, and hence, a slight chance for hackers to track down your activity on BitAddress. Thus, they suggest a more advanced method to ensure that you’ll leave no marks online while generating your paper wallet.
As we mentioned, the process isn’t as complex as it may sound but is definitely time-consuming. To make this operation workable, you’ll need the following “equipment”:
- A new USB drive;
- Ubuntu operating system;
- Lily software to install the Ubuntu onto your USB drive;
- The BitAddress open-source software (downloaded).
After obtaining the pre-requisites, follow these steps:
- Open up the LiLi software and insert your USB drive;
- Click ISO/IMG/ZIP and find the Ubuntu ISO file — it’ll be here if you have successfully downloaded Ubuntu at the beginning.
- Doublecheck if the Format the Key has FAT32 as a default parameter and click the lightning bolt to activate the process of installation;
- Unzip the downloaded BitAdress zip file and copy it onto the USB drive;
- Restart your computer and click F12 over the boot-up stage so that you can choose to run the Ubuntu operating system from the USB drive;
- Adjust the printer on the Ubunutu system;
- Open the BitAddress file and generate the wallet locally.
Don’t let the equipment requirements scare you off. This multi-layered process is fully justified, especially if you hold a ridiculously large amount of Bitcoin.
A Few Words Before You Go…
Paper wallets are just not enough to keep in touch with the latest trends in the crypto industry. The blockchain ecosystem has reached new heights of motion with the invention of the thousands of DeFi tokens and NFTs. Even if you stick to Bitcoin, you’ll need a more dynamic environment for managing your coins.
However, the rapid development of the industry doesn’t give us the right to exterminate paper. This means of storage can work perfectly well with one-time investors who don’t plan to engage themselves in any trading activity. Or, giving someone a fraction of “printed” Bitcoin as a birthday gift also sounds great.