When learning about paper wallets it's likely that you came across this option nestled safely in the “cold wallet” section in the different types of cryptocurrency wallets. While the popularity of paper wallets has somewhat declined, there are still a strong number of crypto enthusiasts that still appreciate the completely offline storage option. Let's explore what is a paper wallet and whether it's suited to your crypto needs.
What is a paper wallet?
For those needing a recap, a paper wallet is a piece of paper that holds both one’s public and private keys in both alphanumeric form and QR codes. Known as a non-custodial cold storage wallet, paper wallets allow the holders to manage their own private keys and remain entirely offline. A private key is a unique code that grants a user ownership of their wallet and digital funds, akin to a pin code for a bank account.
Creating paper wallets is incredibly simple, and can be completed in a matter of seconds. As a paper wallet "functions" offline, this makes them free from hackers, unlike a software wallet which is operated online. However, the paper wallet still carries its own set of risks in that the piece of paper cannot get damaged or lost. Many Bitcoin paper wallets have been lost due to the paper fading or the information becoming illegible.
The objective of keeping a paper wallet is to keep the private key safe whether its for a Bitcoin paper wallet or one designed to hold any other cryptocurrency. Each crypto wallet will be designed to store one specific cryptocurrency.
The term Bitcoin wallet is a generic term for any type of crypto wallet, whether a paper wallet, a software wallet or any type of online wallet or hot wallet. The only distinguishing factor is that the digital wallet only holds Bitcoin.
Precautions for using paper wallets
While storing the paper wallet securely in a safe location makes the top of the list here, other precautions to take are listed below:
Always use a good quality printer. Ensure that your paper wallet is printed with a high-quality inkjet printed to ensure that the characters on the paper don’t fade or bleed over time. Should this happen you could lose access to your funds.
Don’t share private keys
Never share your private keys with anyone. Paper wallets are designed to show the public key QR code on one side and the private key on the other. When sharing your public key with someone be sure not to accidentally share the private key as then they could gain access to your funds.
Be sure to set up a change address
If you don't set up a change address before sending funds from a paper wallet, the leftover funds will go to waste. A change address is a separate wallet address that picks up the change from a transaction.
If you have, for example, 100 BTC in your Bitcoin paper wallet and only spend 0.50 BTC, the remaining 99.5 BTC will either be sent to the change address or lost from your own paper wallet entirely.
Paper wallets are not designed to be used for sending funds, but instead for receiving and storing funds for the long term. Hot wallets (as opposed to paper wallets) are better suited to users looking to frequently send and receive funds. There are plenty of crypto wallets on the market, ensure that you find the most convenient one for you.
Alternatively, funds can be stored in a yield-generating account where your funds can earn interest. Tap offers a wallet of this nature conveniently located on the app, which allows users to hold several crypto and fiat currencies and earn rewards based on each currency. The longer the funds remain there, the higher the yield.
While paper wallets remain offline, there are still risks associated with them. Be sure to adhere to the above precautions in order to keep your funds safe.
Are paper wallets still relevant?
In the early days of crypto trading, paper wallets were strongly advised due to the offline safety of storing private keys. They began to be popular around the end of 2010 but unfortunately have been on a decline in more recent years as innovation in the industry has picked up momentum. A paper wallet is resistant to online attacks as long as it's made correctly; you can't hack a piece of paper.
In the past, people could create and print paper wallets for their crypto right from their exchange accounts. But now experts believe that hardware wallets are a more secure option, so most major exchanges don't offer this service anymore.
While some die-hard crypto traders still believe in the solid security of paper wallets, there are plenty of more innovative options available on the market today.
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