When looking for a reliable bitcoin wallet, what are some qualities you look for? Some of the most important factors when it comes to bitcoin investing are where you store your crypto and how safe that storage system is.
There are two main categories when it comes to bitcoin storage: hot and cold wallets. Hot wallets are storage applications that operate online, while cold wallets function offline.
Cold wallets are often regarded as the safer option, as online wallets can sometimes be susceptible to hackers. In the cold storage space, there are two main kinds of wallets: paper wallets and hardware wallets.
In this article, we’ll be giving you an introduction to paper wallets.
How do paper wallets work?
Bitcoin, unlike traditional fiat currencies, does not have a physical representation. Digital means are used to store funds instead of the usual physical wallets that hold our bills and cards. However, paper wallets can be considered to be a physical form of a digital wallet. Sounds like it doesn’t really make sense, right? Let us explain!
This kind of wallet is an actual piece of paper that holds your public keys and private keys. It usually has its address printed in the form of QR code. The “paper” in “paper wallet” represents the method of access to your coins. You can think of it as a marriage between a digital and a physical wallet.
Creating a paper wallet
You can use any bitcoin paper wallet generator online to get started. In some cases, ATMs will also include an option to generate one. The site will create your wallet with the corresponding QR codes and keys and once it’s been generated, your data is wiped from the site—preventing any keys from being saved internally.
In an ideal world, you should be creating your paper wallet with a brand new computer to prevent any malware interference. However, that’s not always the most practical method. Instead, what most people do is unplug their Internet access while the wallet is being created and then clear their history immediately after. At the very least, you should be doing a malware check before generating a wallet. It’s always a good idea to take precautions.
How to spend using a paper wallet
Paper bitcoin wallets are often used for long-term investments (or as people love to say, HODLing 😁). However, it’s advisable to “sweep” the wallet as soon as you can. “Sweeping” refers to the act of transferring the funds from a paper wallet into another wallet (whether than be an online wallet or a hardware wallet).
Sweeping your wallet is highly advised because keys and QR codes are printed on paper, which means it has the potential to fade (especially if the ink used is inexpensive), or worse, the paper can get lost or damaged.
As mentioned earlier, using a paper wallet protects you from hackers, as your BTC is stored offline. Even in today’s trading climate, physical wallets are considered to be best-in-show when it comes to storing your digital treasures—and by taking the necessary precautions and the wallets being properly constructed, it would be nearly impossible (in the very least, extremely difficult) for hostile forces to access your money.
Furthermore, one of the most appealing qualities of a bitcoin paper wallet is that you won’t have to worry about hardware or software failures—you just need to take care of a single piece of paper. Though the funds itself may not be stored on that paper, the private information is, and that’s what’s essential for accessibility.
Despite hackers not being able to access your money, it doesn’t mean the wallet is entirely invulnerable. If the location of where you’re keeping the piece of paper is discovered, it could jeopardize the safety of your funds.
Additionally, with your private information being physically stored on a piece of paper, it comes with the vulnerabilities of any physical storage system—which means that it has the potential of being lost or damaged. If the wrong type of ink is used, the information on the paper could bleed, run, or even fade with time. If the printing is compromised in any way, you’ll lose access to your bitcoin, rendering the wallet useless and inaccessible.
There’s also the chance of the wallet software no longer recognizing the format of the paper wallet, bringing a new onslaught of problems to your storage system.
When it comes to the safety of your funds, it all boils down to user error—the more care you have with the wallet, the safer your money will be. If you’re reckless or careless, you easily could lose access to your money.
In addition, generating and using paper wallets as a means of storage for beginner traders can sometimes get too technical and complicated as compared to alternative wallets. For this reason, they are ideal for more experienced traders.
Outweighing the pros and cons
Paper wallets have been long regarded as one of the safest ways to store bitcoin. In their earlier days, they were the most secure option because they placed the security of money directly in the hands of the user. Although that is often regarded as a positive aspect, it also means the risks are amplified, especially if you have an incomplete understanding of how they work.
Despite early popularity, many traders see it as merely a “middle step in bitcoin’s evolution.” Some may even consider it obsolete, as there are safer and more practical ways to store BTC now—namely hardware wallets.
However, it shouldn’t stop you from exploring them and their practical applications—but remember, it’s important to get a good grasp of how they work before you begin your exploration. The cryptocurrency space is still in its infancy, and there are bad apples in the world looking to take advantage of unsuspecting traders. By further learning how paper wallets work, you’ll be able to protect yourself and keep your money safe.