Hot storage, cold storage, hardware wallets, software wallets, custodial and non-custodial. These are all terms related to cryptocurrency wallets and storage, but the oft-neglected avenue for cryptocurrency storage is a Crypto paper wallets, the original way to keep your keys safe. When done correctly, a paper wallet is just about the safest way to store your crypto, but what are they and how do they work? We will answer both those questions and more in this Guide to Paper Wallets.
Paper Wallet Pros & Cons
Pros
When set up correctly, a paper wallet is one of the most secure ways to store crypto
Complete control of your crypto
Paper wallets are free
Cons
Requires a deep understanding of crypto and security
If your paper wallet is stolen or lost then all the crypto on it is gone
There are no recovery options for paper wallets
Difficult to send transactions using a paper wallet
What Are Paper Wallets?
Paper wallets are exactly what they sound like, a crypto wallet made of paper. Rather than having a Ledger hardware wallet, or a browser extension such as meta Mask, you keep a piece of paper that contains both your public and private keys.
As long as no one gets hold of your paper wallet, and you keep it safe/undamaged, your crypto is completely safe, but we will take a look at potential drawbacks later on.
How Paper Wallets Work
Paper wallets work a little differently than your more frequent wallet choices such as a hardware or software wallet, but this is solely because you as the user have to do manual work that is not required with those latter choices. Unlike with hardware or software wallets, when you generate a paper wallet, you are required to write down/print/note both your public AND private keys. With the former, you generally only need to write down your recovery seed to regain access to your wallet and your public key is easily accessible.
When you generate a paper wallet you are given both your private and public keys and there is no recovery seed.
Difference Between Paper Wallet and Recovery Seed
If you have ever set up a crypto wallet, whether hardware or software, you have had to write down a recovery seed of 12 or 24 randomly ordered words. This seed is what you use if you get a new device, lose your old one, want to import your wallet to a new wallet, or several other situations.
The difference between this recovery seed and a paper wallet is that there is no recovery seed for a paper wallet, if you lose your paper wallet you lose your money, and there is no way to regain access. A paper wallet is simply a physical copy of both your public and private keys, whether written down, printed, or engraved into a surface, you simply need to have access to it to send and receive crypto.
Paper Wallet Benefits and Drawbacks
When done correctly, the main benefit to a paper wallet is that there is no more secure way to store your digital assets. This is because if you do it properly, meaning following steps to ensure that when you generate and store your paper wallet you are not connected to the internet and that your computer is free of malware, there is no trace of your wallet online, meaning there is nothing to hack and that the only way to access your funds is by holding your paper wallet. Properly setting up a paper wallet is the ultimate form of cold storage because there is no trace of it on the internet.
This is also the main drawback however, if you lose your paper wallet there is no recovery seed to regain access to your funds with, meaning you lose them permanently. As this is the case, there are several recommendations for keeping your paper wallet safe including laminating the piece of paper and using something less fragile than paper to store your information, such as a variety of steel options that have come to market, keeping multiple copies, or dividing it into multiple parts, though that last option can be a pain when you need to move funds.
There’s also the challenge of transferring your private keys from your computer to a paper wallet. You’ve either got to find a printer on a network you trust 100% or you’ve got to manually copy it down. If you get even one character wrong (of which there are 256) then you could lose all your Bitcoin.
Furthermore, the usage of a paper wallet is more technical than most other alternatives, so it is not necessarily recommended for beginners, as it is easy to incorrectly copy down information, mix up which key is for what, and just more difficult to set up and store in general. Sending funds from a paper wallet is also more complex than through more modern means.
History of Paper Wallets
Paper wallets are the original way to safely keep your crypto assets in cold storage. Beginning in 2011 with the introduction of Bitcoin, paper wallets were the only way to store your Bitcoin until software and hardware wallets became more prominent. As you might expect in the early stages of crypto storage, these paper wallets were often lost or damaged by users who did not plan properly when setting them up. This has likely contributed to the millions of Bitcoins that are locked in the wallets of users who lost their private keys, though this also speaks to the security of the method as it proves that you cannot access a wallet without having that piece of paper.
Over time paper wallets have become less and less popular, as it is a bit of a pain to set one up securely, and there are so many other options coming to market every year that passes by. Hardware wallets (which incorporate an offline device for what’s called “cold storage”) are an excellent compromise. Some would also argue that recovery seeds are a safer way to gain access to your funds.
If you’re extremely serious about keeping your crypto secure (and are highly technically) then you might consider a paper wallet. Most people will probably want to look at other options.