What Is a Paper Wallet and How Does It Work | Cryptotag
Whether you’re a crypto expert or just starting, you will most likely know what a cryptocurrency wallet is. If you do not, then you may want to catch up on the basics before continuing. If you do, however, then you’ll probably know that not all wallets are created equally. Some are easier to use, others are more complicated; some are safe, others not so much. That’s where crypto paper wallets and other alternatives come in.
Paper wallets are not the easiest wallets to use, but they allow you to take security into your own hands quite literally. If you’re big on security or even if you’re just an old-fashioned person, a paper wallet may be just what you need. In this guide, we’re going to teach you what a BTC paper wallet is, how to create one and how safe it is.
What Is a Paper Wallet?
Cryptocurrency wallets are a tricky concept for those not versed in cryptography but to put it simply, a wallet is a combination of your public and private keys, allowing you to receive cryptocurrency with the former and to transfer it with the latter. With standard digital wallets, these two keys are usually accompanied by a graphic interface that allows you to use both keys in a seamless manner, without any expert knowledge.
However, having your private key stored on your computer can be considered a security risk as it can be accessed by hackers or by anyone that can reach your computer physically. That’s where things like cold storage, hardware wallets and paper wallets come in. They allow you to use or send cryptocurrency without putting your funds on the line by keeping the private key away from your computer and, consequently, the internet.
So, what is a crypto or bitcoin paper wallet? Well, based on the aforementioned public/private key concept, and as the name suggests, paper wallets are nothing more than a piece of paper containing both your public and your private keys.
A public key is equivalent to your wallet address and is the information you share when receiving a payment or transfer, similar to an IBAN. The latter, however, is used more like a bank account PIN. You’ll need to use this key to “sign” transactions which are then broadcasted to the Bitcoin (or any other cryptocurrency) network.
Singing a transaction is an important concept to keep in mind as signing a transaction on an offline computer ensures that your key will never be in contact with the world wide web, thus securing the key but still allowing you to transact as you see fit. There are a few tools out there that will allow you to create and use a paper wallet quite easily. There are a few guides out there on how to create a paper wallet, and we’ll include one at the end of this article.
It’s worth pointing out paper wallets are exposed to the elements as they’re made out of paper, so over time they may not be the most valuable option. Natural disasters or accidents can easily see the paper get destroyed, or thrown away.
How to Create a Paper Wallet
Creating a paper wallet can be quite simple. Using a tool like Bitaddress, the process is made easy.
Step 1: Visit Bitaddress and generate a random key by moving your mouse around or typing random letters (these methods add a healthy dose of entropy to the process)
Step 2: Choose the “paper wallet” option and how many wallets you want to generate. You also have the option to add or remove the artwork.
Step 3: Once step 2 is fully done, click “Generate” and then “print”
Voila, your paper wallet should be coming out of your printer right now! If you’re stuck on any of the steps below or want a more in depth guide on how to create and use a paper wallet, have a look guides online.Alternatively you can look at a shorter guide published by Blockonomi.
Is a Paper Wallet Safe?
The short answer is yes, to some degree. Paper wallets are fairly safe. However, no system exists without its shortcomings, and paper wallets can be exposed to danger
as well. If someone gets ahold of your paper wallet, they will be able to use your funds quite easily, the same way you would.
It’s important to note, however, that this is also true for anyone that gets ahold of your computer or mobile device with a digital wallet installed, although these wallets are usually protected by a PIN or password as are most computers.
So, paper wallets are safer if you’re safeguarding against hackers or any other type of attack that may reach you through the internet but if you’re looking for something that will protect you on all fronts, then a hardware wallet is certainly a more complete solution.
Hardware Wallet vs Paper Wallet
We’ve covered the basics of a paper wallet, so let’s look at hardware wallets as these may present themselves as a better alternative depending on what you’re looking for and how much you’re willing to spend. While paper wallets are quite secure, hardware wallets add an extra layer of security, bringing the best of both worlds, digital and paper wallets, to the table.
Hardware wallets have the same purpose as paper wallets, in the sense that both of them act as a recipient for your private and public keys, keeping the former away from the world wide web. One could even argue that a hardware wallet is the technological evolution of a paper wallet. The big difference here is on how the recipient itself is protected.
With paper wallets, no physical protection is granted. If someone gets ahold of your paper wallet, you can kiss your funds goodbye. With a hardware wallet, however, you’ll always need to enter your PIN which will then decrypt your private key and allow you to sign transactions on the device itself. This means that if any malicious individual finds your hardware wallet, you still have your PIN to count on.
Not only are hardware wallet safer, they are also more practical as you don’t need to transcribe your private key to move your funds.
While hardware is a superior option, they are obviously more expensive than a paper wallet, which can be created for free unlike a hardware wallet which will always incur a cost. With this in mind, it’s up to you to decide how safe you think you need to be. For some, a hardware wallet may be overkill while others may feel it’s absolutely necessary.
Despite their advantages, hardware wallets also have their shortcomings. Electronics don’t last forever and in the long run they may be susceptible to malfunctioning, software failures, or exposure.
Paper Wallet vs. Recovery Seed
Another important concept to keep in mind and that is quite prevalent in crypto are recovery seeds. Used both in hardware and digital wallets, recovery seeds are mnemonic phrases that are used to keep your private key stored (on a piece of paper, for example) without the need to write a confusing string of alphanumeric characters. This keeps your private key safe as seeds may not be identified as private keys at first sight.
While paper wallets are intended to be used for each transaction, recovery seeds are instead used as a last resource when the wallet PIN is lost or forgotten. Put simply, recovery seeds are part of digital or physical wallets, a backup to be used if the PIN is not available, while paper wallets are more like the PIN itself.
With this in mind, having a hardware wallet and keeping your seed stored on a piece of paper is a big mistake as it exposes you to the same risks as a paper wallet does even after spending a significant amount of money.
To ensure your recovery seed is fully protected, a device like CRYPTOTAG can be used. CRYPTOTAG lets you write your seed on a titanium plaque that can resist natural disasters, won’t accidentally be thrown away, and has no software, so isn’t susceptible to any trickery.