What Is a Paper Wallet?
by Scott Wehman
How do you put Bitcoin on paper?
Isn't cryptocurrency just a number on a Ledger?
If paper wallets confuse you, you've come to the right place.
The paper wallet is perhaps the least understood of the many Bitcoin storage methods on the market.
First introduced and popularized in 2011, paper wallets provide offline (aka “cold”) storage of your coins. Along with the private and public key pair are associated QR codes. In printed form, these make receiving or spending bitcoin more convenient.
While bitcoin paper wallets introduced an additional level of security against some threats, they proved more vulnerable to others.
The danger in employing a bitcoin paper wallet begins with those introduced by you, the user.
Without a complete understanding of the paper wallet storage method and risks (and how to compensate for those risks), the odds of losing your funds is high.
This is especially true if you are storing your entire sat stack in one private key.
How To Spend Coins On a Paper Wallet
First, you must understand that a private key associated with a paper wallet must be spent all at once.
The unspoken assumption is that funds will eventually be “swept” into a separate wallet address for active spending.
This crucial detail is easily missed by novice users who are not aware of how Bitcoin transactions work under the hood.
Dangers of Using Paper Wallets to Store Crypto
When dealing with Bitcoin, you should assume your WiFi to be compromised and monitored at all times (even if you believe it isn't).
When you choose to use public or shared devices, many paths are opened for outsiders to intercept your private information. These devices may also leave logged data behind.
Because of this, when creating a paper wallet, we need to devise a method that mitigates these risks.
I advise using a fresh installation of Linux on a device which has never been online to generate the keys. You can follow this guide for creating your own bootable Linux LiveCD or USB. These CD's are great for occasions when you need a clean install of an OS fast and easy.
Of course, you will then need to send this key pair to a printer to create the paper wallet itself. However, we now face a new problem because the dangers of losing our coins have merely shifted from the digital world to the physical one (the printer).
Devices malfunction and other unexpected mishaps can result in your keys and/or QR codes being printed incorrectly. Thoroughly test them at each step.
These printed characters cannot and should not be assumed to have correctly transferred to the paper.
Poor ink, jammed paper, lousy printing performance or power interruptions are all likely to render the paper wallet useless.
Now your key pair is printed flawlessly.
Unfortunately, we aren't out of the woods yet.
With a paper wallet, the coins remain in danger the entire time that you leave them in that address.
Because the paper itself could be lost, stolen, observed by unwanted parties, burned, faded or sustain water damage.
You might be wondering, "Should I just put my paper wallet in a safety deposit box?"
Doing so might mitigate some of the risks, but I don't recommend safety deposit boxes.
First, most are only insured up to $500. As the New York Times recently summarized:
"Wells Fargo’s safe-deposit-box contract caps the bank’s liability at $500. Citigroup limits it to 500 times the box’s annual rent, while JPMorgan Chase has a $25,000 ceiling on its liability."
And at any rate, if something were to happen to your paper wallet while in the care of the bank, you would need to prove not only that you were storing a wallet in the box, but also how much the wallet held.
This is assuming you can even trust the bank in the first place; an assumption that is increasingly unfounded when discussing the privacy of safety deposit boxes.
The Best Way to Store Crypto
Since the introduction of paper wallets, the Bitcoin Improvement Proposal (BIP 0032) has changed and improved the direction that bitcoin management and security has taken.
This proposal paved the way for BIP 0039 which created the option of using a series of human-readable seed words (a mnemonic device) to generate and decrypt a bitcoin wallet.
It can allow you to create as many addresses as you like with either a hardware or online wallet (read about how many Bitcoin addresses that exist here).
With a mnemonic, you can store the seed words more easily by removing the printer from the process entirely. Hand writing them is a simple and straightforward approach, although the risk of being destroyed by fire or water remain.
This is where a device like the Billfodl shines.
Backing up your hardware wallet’s deterministic seed words in one convenient and incorruptible device has never been simpler.
It has been optimized for easy setup and underwent rigorous testing in all manner of extreme destructive conditions. No other offline medium can match the security of Billfodl.
Even if you've secured your paper wallet from being compromised online, it's still not entirely safe.
The paper wallet is subject to a number of real-world but avoidable risks. In some ways, the printed method of storing keys was a distinct improvement over purely online storage methods back in 2011.
However, paper wallets are now considered more of a middle step in Bitcoin’s evolution.
Deterministic methods and hardware wallets have rendered the bitcoin paper wallet obsolete. You should simply consider paper wallets too cumbersome and unsafe to use.
Paper wallets are, however, useful for specific applications such as gifting small sums of bitcoin to new users.
But for a hodler, it is better to obtain and use a hardware wallet like the Trezor or Ledger Nano S.
When you pair a hardware wallet with the Billfodl, securing your bitcoin in a robust and offline fashion has never been more straightforward. Learn more about Billfold here or use the cart button below to make a purchase.