What is a paper wallet?
A paper wallet is literally a piece of paper with a private key written within it, or a root seed that can derive multiple private keys. A paper wallet might contain a private key and be used as an exchange or gift of value, similar to the exchange of paper money with one another.
Spending paper wallets
A paper wallet can be used as a physical form of bitcoin. On a piece of paper you can simply write down a private key with the corresponding amount of bitcoin contained within the private key. It can be useful for people who do not have access to a bitcoin wallet or are unfamiliar with how cryptocurrencies works. If I would like to gift some bitcoin to a friend this has some practical use. The problem occurs when I wish to exchange my paper wallet for something of value, or sell it to someone. The person on the other end of the deal is going to have to trust I don’t have the private key elsewhere. With a copy of the private key I can simply spend the content of the wallet. Having to add an element of trust with the use of a third party completely undermines what an immutable blockchain cryptocurrency stands for.
Paper wallets as storage
In the earliest days of Bitcoin the only way to store a private key was on pen and paper. This was a complex and arduous task if you wanted to make multiple transactions. Nowadays, people often refer to a paper wallet as a form of storing their root seed. This is expressed in mnemonic code using (typically) 24 words. See our page on “What is a private key” for more information.
Methods and the risks of creating paper wallets
There are monumental risks when it comes to creating your private wallet:
- The website could be compromised
- If not audited after every use, private keys could be leaked back to a public server
- Browser extensions could be collecting your data
- Your computer could be compromised
- When printed, if your private key is exposed it is no longer secure
- Your printer may save all work it has printed, increasing exposure of your keys
- Writing out a private key with pen and paper runs the risk of human error
If we were to list all the potential risks paper wallets pose, we would have more bullet points than a Western saloon. It goes without saying, using paper wallets as a form of trustworthy exchange and/or security comes with extreme risks.
What is the best method to securely create a paper wallet?
There are many precautionary measures you need to take in order to create a safe paper wallet using a program.
- Go offline- create your wallet without being connected to the internet. This ensures your private key cannot be transmitted
- Verify the integrity of the code- this will ensure that the private key is truly randomised.
- A fresh operating system- boot your computer from a fresh operating system to ensure you have no malware on your computer. Cryptocurrency wallets have been compromised in this manner in the past.
- No digital backups- never save your keys to a hard drive or scan them unless you wish to spend them at that moment
- Web-based generators should not be used
- Entropy based generation- the randomness of the private key must be truly that. If parameters are set when the private key is created, there is a chance the key can be predicted or calculated.
- A paper wallet is single use only
Creating a paper wallet
To create a paper wallet securely you’ll need to take the precautions above. Most people will not have the technical ability to do follow the precautions above, so understand the risks. We suggest using paper wallets for small amounts only.
A website that can be used is https://walletgenerator.net/. This wallet is in no way affiliated with BTC direct and should be used at your own risk. If you do wish to proceed we would recommend to:
- Download the offline version of this website via github
- Create a wallet and print it offline- do not save it to a pdf
- Keep your private key safe and never reveal it.
The wallet comes with the key of your public and private key in an alphanumeric form, as well as in the form of a QR-code.
Can you reuse paper wallets?
Reusing paper wallets comes with some potential dangers. When the bitcoin protocol was created, addresses were not intended to be reused. Address reuse is a function by accident rather than design. A problem with reusing the same address over and over is that it damages the privacy of yourself as well as the people you are transacting with. By exposing yourself in such a manner you might reveal to unwanted persons or third parties about your holdings. If you’re in the position of having large holdings and you expose yourself, you might be putting yourself at risk to something like a ransom. Or perhaps your landlord can figure out the maximum he can charge you because he knows of your cryptocurrency holdings.
Storing paper wallets
The biggest breakthrough of blockchain technology in cryptocurrencies is the independence from financial institutions. A trustless system. Storing your paper wallets will require you to trust yourself to store them safely enough. Secure them as you would precious jewels or large amounts of cash. One of the safest methods would be to engrave your private key or root seed onto a titanium sheet. Storage of this “paper” wallet could be kept in a safe at home or at a bank vault (element of trust required).
Storing your 24 words on a physical piece of paper might be risky. Paper and ink is quite vulnerable and you can’t tell if someone has found it and taken a peek. In the old days, letters were sent with a wax seal printed with a coat of arms. You can consider buying something that is safer from https://cryptotag.io. Here you can purchase a near-indestructible device that stores your root seed or private key.
Paper wallets as a form of storing just a private key is something best left to the experts. Nowadays a paper wallet is also referred as the place you store your 24 word mnemonic phrase. It is imperative you take measures to ensure this is stored in the safest possible manner. Owning your own bitcoin or cryptocurrencies and ensuring maximum security comes with its own responsibilities. We promise it’s worth it!