Most people entering crypto for the first time are often introduced to hot wallets like metamask and trust wallet or exchange wallets. Despite being the most user-friendly type of wallet, hot wallets are the most vulnerable.

Hot wallets need to stay connected to the internet to work, which is their greatest weakness as it leaves them highly vulnerable to online hacks and scams.

To safeguard crypto assets from hacks and online scams, many people use paper wallets to store their private keys offline.

Crypto paper wallet explained 

A crypto paper wallet is like a safe for your cryptocurrency, with its address and private key printed on paper. It’s a way to keep your cryptocurrencies offline. They are considered non-custodial cold storage because the private keys can be printed, reducing risks online. 

With digital options being more popular, paper wallets are still around because they’re secure and affordable. They’re not just for cryptocurrencies anymore; you can get one as a receipt from a Bitcoin ATM.

How do Paper Wallets work?

Understanding how paper wallets work requires the knowledge of their basic elements and processes. A paper wallet is a physical means of storing cryptocurrency, containing private and public keys printed on paper offline. The private keys are for accessing the funds, whereas the public keys are for payments.

Security is essential in paper wallet usage. Some paper wallets use QR codes for easier key entry and are printed securely to prevent unauthorised access. Storage of paper wallets should be done in sealed envelopes away from the sun and water or tamper-evident bags, along with creating backup copies, enhancing security.

Funding a paper wallet involves sending cryptocurrency to a printed public address, with the transactions recorded on the blockchain. Accessing funds, on the other hand, requires software or mobile wallets capable of importing or sweeping the paper wallets. However, caution is advised, as exposing the private key to network-connected devices can compromise security.

It is advised to create new paper wallets and transfer the remaining funds after each use to maintain security. This ensures the integrity of the storage system and safeguards cryptocurrency holdings.

How to create and use a paper wallet.

Creating a paper wallet is very straightforward.

Creating Your Paper Wallet:

• Choose a trusted app or website for generating your paper wallet.
• Decide how many copies you want to print and enter a PIN or password if prompted.
• Generate and print your wallet securely, ensuring you’re not internet-connected.
• Once printed, delete the app to enhance security.

Using Your Paper Wallet:

• Choose a reputable software or mobile wallet app capable of importing or sweeping paper wallets.
• Open the wallet app and locate the import or sweep option.
• Enter or scan the private key from your paper wallet.
• Confirm the transaction and wait for confirmation.
• Verify the funds in your wallet and secure it according to best practices.

Creating a Secure Paper Wallet:

• Work in a secure offline environment to avoid malware or online threats.
• Use a trusted paper wallet generator website or apps like Bitaddress.org or WalletGenerator.net.
• Download the generator from a reliable source and disconnect from the internet.
• Generate the keys securely and print them using a secure, offline printer.
• Enhance security by encrypting the private key with a passphrase or using tamper-evident seals.
• Store the paper wallet securely and consider making backup copies stored in different locations.

Following these steps, you can rest assured of the creation and usage of a paper wallet to store your cryptocurrency offline securely.

How to keep your paper wallet secure.

1. Store in a secure location: Keep your paper wallets in a safe and secure area, like a safe, away from theft, fire and flood.
2. Use tamper-evident packaging: Use a sealed envelope to package your paper wallets if there’s ever a need to mail your wallet.
3. Make multiple copies: Create copies of your wallet and store them in secure locations as backups in case of theft or loss.
4. Encrypt the private keys: Add an extra layer of security by encrypting the private keys with a passphrase to ensure only authorized access.
5. Be mindful of digital threats: Precautions should be taken when creating and using a paper wallet. Precautions include working in a safe offline environment and using trusted wallet generators.
6. Regular Inspections: Check your wallet regularly for signs of tampering or theft, and ensure to transfer your funds if you find any suspicious activity.
7. Confidentiality: Protect your private keys and avoid exposing them to anyone. Only share your wallet address (public keys) to receive funds.

Pros and Cons of a Paper Wallet 

Paper wallets have some advantages, including;

• Protection from cyber attacks, hardware failures and system errors, to mention a few.
• Useful for long-term storage of funds
• It’s easy to generate and print.

They also have some drawbacks;

• In the case of loss or theft, all funds in the wallet will be lost as you won’t be able to access your wallet. A safe or any other secure storage method should be used to have a paper wallet.
• Fire and flooding can also be a major cause of failure or loss of wallet.
• There will be a need to import your keys to software at times to send funds, which is a security issue.
• Paper and ink can fade over time if low-quality paper is used, and it can potentially cause a loss of funds.

Significant issues with paper wallets

While we’ve talked about issues regarding the storage and printing of a paper wallet, one other major problem is that of change outputs in transactions.

Change outputs in transactions can be a portion of cryptocurrency returned when you do not send out all the funds in your wallet. 

In paper wallets, there’s a risk of losing funds if you send part of the available funds in your wallet without a change address (an address for the excess funds).

Repeated use of a single paper private key is a big security risk and even affects the privacy of your wallet. It’s best to use a paper wallet once or create multiple keys manually, which can be complex and risky.

Sweeping and Importing of Paper Wallets 

Understanding the difference between “sweeping” and “importing” keys is crucial in transferring funds in a paper wallet. 

Importing means making copies of the key, leaving one vulnerable to losing funds if a change address isn’t set up. Sweeping on the other hand transfers your entire balance to a new private key, ensuring any change is automatically sent to the software wallet.

Alternatives to a paper wallet 

Paper wallets were once the most secure method for storing cryptocurrency as they are a form of cold storage because it has no access to the internet. It is still a valid way to store your tokens if you have no other storage method. 

However, it would be best to consider it a temporary method until you can access another way to store them.

Below are the best alternatives to a paper wallet.

1. Software wallets: Software wallets use computers, mobile phones and other compatible electronic devices to store and handle cryptocurrencies. They are user-friendly and offer privacy protection for private keys. Examples include Exodus.
2. Hardware wallets: Hardware wallets are specifically designed devices for storing cryptocurrencies. They are safer as private keys are kept offline, and transaction confirmations require physical verification. Examples include Ledger Nano S and Trezor.
3. Web wallets: Web wallets or online wallets are wallets that are accessible from the internet. While they are convenient and more accessible, there’s the risk of a lack of security of private keys. Examples include MetaMask and Coinbase Wallet, to mention a few.
4. Mobile wallet: These apps are designed to store and manage cryptocurrencies, giving users direct access to their funds. Examples include Trust Wallet, 
5. Multisig wallets: Multisig wallets are wallets that require multiple signatures to authorize transactions to reduce the risk of failures in the transaction. The custody of private keys is shared amongst various parties in a multi-sig wallet. Examples include Bitget and Electrum.

Conclusion

Paper wallets have always been considered a reliable option for storing cryptocurrencies due to their accessibility. However, they are susceptible to hacking attacks like other wallet types. 

While some view paper wallets as outdated, it’s crucial to weigh the pros and cons of various storage methods available today. Although hardware wallets are now favoured for enhanced security and efficiency, some still use paper wallets temporarily. 

When using paper wallets, it’s essential to take precautions, especially when transferring or storing data online. While digital wallets are the norm for storing digital currencies, paper wallets remain an alternative option, albeit with associated risks such as potential damage and security vulnerabilities if proper precautions are not taken.