A cryptocurrency paper wallet is a physical document containing a public address for receiving funds and a private key for accessing and managing those funds. 

It serves as an offline storage solution, offering enhanced security by keeping sensitive information away from online threats. Safety is often overlooked by newcomers in crypto therefore understanding paper wallets and their functionality is important steps to ensure your assets remain secure.

In this article we uncover paper wallets in more detail, how they work to keep your crypto in safe hands, along with their pros and cons compared to other crypto wallets.

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What is a Paper Wallet?

A paper wallet is a physical document that contains essential information for storing and accessing your cryptocurrency. 

It typically includes a public address for receiving funds and a private key for spending or transferring your digital assets. Unlike online wallets or hardware wallets, paper wallets are entirely offline, providing an additional layer of security against cyber threats.

Paper wallets were a popular choice for early crypto investors after Bitcoin’s emergence in 2008. Storing assets like this can be seen also with stocks and shares before it turned digital in the 2010s. 

Over the years we have seen brands like Ledger and Trezor lead the way for asset management on the blockchain. While convenient, investors still opt for paper storage wallets for their crypto. As the saying goes, “why change it, if it works?”.

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Components of a Paper Wallet

Before getting started with storing your crypto in a paper wallet it is important to understand how they are made. 

Paper wallets while a piece of paper are made up of two important components. 

Public Address: This is the location where others can send cryptocurrency to your wallet. Think of it as your account number.

Private Key: This is the secret code that allows you to access and manage the cryptocurrency stored at your public address. Guard it with utmost care.

Both of these keys are generated at the point of purchase for your crypto tokens. An exchange or platform will generate keys for you and maybe even a QR code you scan to access your tokens online. 

Storing crypto through a paper wallet is a  non-custodial form of crypto security and ownership, meaning the user has full control over their private keys. 

Handing them over to an external party raises questions on whether the crypto is truly yours. This means paper wallets stick to the original intentions of crypto assets being decentralized.

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How Paper Wallets Work

Understanding how paper wallets operate is crucial for harnessing their security benefits. 

While not as popular as they once were due to technological advancements in the crypto wallet space, they are still a fundamental choice for a safe and offline storage method.

Here's a step-by-step breakdown of how crypto paper wallets work:

1. Generate a Paper Wallet

Use a reputable paper wallet generator tool to create a new wallet. Ensure that the generator is offline to minimize the risk of exposure to potential threats. 

It is also important to run an up to date antivirus software through the device that is generating the paper wallet. This means that the keys associated with it cannot be compromised online.

2. Print or Write Down the Wallet Information

Once generated, print the wallet details or write them down manually. Avoid saving the information on a digital device to eliminate the risk of hacking. Keys are removed from your digital wallet once they have been printed.

Be sure to keep a hold of the printed details and keep them safe. Losing it may pose a threat to your digital assets’ safety.

3. Secure the Storage

Safeguard the printed or written information in a secure physical location, such as a safe or lockbox. Consider making multiple copies and storing them in different secure locations for redundancy.

Make sure to also keep your digital wallet safe too..

4. Funding the Wallet

Purchase crypto from a reputable exchange such as Cryptology and send cryptocurrency to the public address on the paper wallet. Transactions to this address are recorded on the blockchain, ensuring transparency and security. 

Be sure to send a small amount of crypto first to the wallet to ensure the details are correct. This saves your funds being lost in the blockchain void!

5. Accessing Funds

When you need to access your funds, use the private key to import or "sweep" the funds into a digital wallet or exchange. 

There are a number of digital and hardware wallets that can sweep your crypto. 

Examples of digital wallets include:

• Coinomi
• Electrum
• Mycelium.

Examples of hardware wallets include:

• Trezor
• Ledger.

Pros of Paper Wallets

While paper wallets are not a go-to like they once were, they still offer a number of benefits for crypto investors even in today’s landscape.

Some of the benefits of paper crypto wallets include:

Enhanced Security

Complete offline storage minimizes the risk of hacking and online attacks. Immunity to malware and phishing attempts that target digital devices.

No Dependency on Third-Party Providers

Users have full control over their private keys, eliminating reliance on third-party services.

Reduced exposure to exchange vulnerabilities and closures.

Long-Term Storage

Ideal for "cold storage," where cryptocurrency is held for an extended period without frequent transactions. Doing this means you are less likely to experience technological failures affecting digital storage devices.

Ownership and Control

Paper wallets embody the true essence of cryptocurrency ownership – the private keys are solely in the hands of the user. Full control over when and how funds are accessed or transferred.

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Cons of Paper Wallets

While the pros of a crypto paper wallet may seem inviting, it’s good practice to understand the cons associated with paper wallets. 

Drawbacks of crypto paper wallets include:

Lack of Accessibility

Not suitable for those who require frequent and immediate access to their cryptocurrency.

Requires importing into a digital wallet to spend or transfer funds.

Risk of Physical Damage or Loss

Being a physical document, paper wallets are susceptible to damage from fire, water, or other environmental factors. Losing the paper wallet means the loss of access to funds. 

It’s recommended to have multiple copies to reduce the risk of losing your paper wallet. Going as far as putting it in a box and/or laminate covers you also.

Learning Curve

Beginners may find the process of generating, funding, and accessing funds from a paper wallet more complex than using online wallets. Like many concepts related to crypto, there is a certain level of technical understanding required to understand and engage with it.

If you are not familiar with paper wallets and the technicalities it may be worthwhile to store your crypto custodially until you feel comfortable going non-custodial.

Accessing Funds and Using Them

While funds in your paper wallet remain offline, they of course cannot be used to their full capabilities across dApps and networks. To do this you will need to still transfer them to a hardware or online wallet to use and exchange them.

This can compromise safety if you are not fully diligent, as moving crypto has resulted in people losing their funds. Always be mindful when moving assets from different wallets.

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Safeguarding Your Paper Wallet

While the inherent security of paper wallets is appealing, it's essential to take additional measures to protect your assets. 

Theft in the crypto space is more common than not with over $3.8 billion being stolen in 2022 alone. So always be on the lookout for your wallet and asset’s safety, you don’t want to become a statistic!

Here are some precautions you can take to safeguard your paper wallet.

Use a Trusted Generator

Choose a reputable and open-source paper wallet generator. Verify the authenticity of the generator to avoid potential scams.

Keep Multiple Copies

Create multiple copies of your paper wallet. Store these copies in different secure locations to prevent a single point of failure.

Consider Encryption

Add an extra layer of security by encrypting the paper wallet information. Only share the decryption key with trusted individuals.

Regularly Check Your Funds

Periodically check the balance on your paper wallet to ensure the funds are secure. Consider practicing the process of importing funds into a digital wallet to stay familiar with the procedure.

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Embracing the Security of Paper Wallets

Paper wallets stand out as a secure and offline option for safeguarding the private keys to your crypto, NFTs and digital assets despite the emergence of more technologically advanced wallet solutions.

While they may not be the most convenient for daily transactions, it cannot be denied their role as a long-term storage solution is admirable. You must also remember that paper wallets have been within the world of investing for many years, they stood the test of time and therefore should not be overlooked for those who are serious about their crypto and cyber security!

By understanding the nuances of paper wallets, beginners can make informed decisions about the security of their cryptocurrency investments, after all whether you lose the piece of paper holding your crypto’s keys is a primary factor on the safety of your assets.

If you want to learn more about the blockchain and crypto, visit the Cryptology Academy today!