Like any other physical asset, storing your cryptocurrency can be confusing for investors, especially for beginners. With several options available in the market such as hardware wallets and software wallets, each of them raises challenges of theft and scams, especially if it is stored online. This increases the demand and necessity for an offline wallet that reduces the risk of cyberattacks. Paper wallets, known for storing cryptocurrencies offline with private keys, mitigate the threat of cyberattacks and other security concerns. This article will explain what a Paper Wallet is, how it works, its advantages, and how it differs from other wallets.
What is a Paper Wallet?
A paper wallet is a cold storage technology, that is used to store cryptocurrencies offline. It is a physical document, essentially a paper that contains private and public keys as printed on it. The keys are in the form of barcodes, or QR codes, which can be used to scan for any transactions, with complete ownership. As it is not connected to the internet, it is immune to potential scams and attacks. Paper wallet made its entry in 2010 and gained quick momentum. After 2016, with the advent of more sophisticated technologies, paper wallets lost their place as a storage solution.
How does a Paper Wallet work?
A paper wallet allows you to store your cryptocurrencies offline, with keys printed on a piece of paper in the form of a barcode. It works by:
1. Key Generation
Users can generate a paper wallet by using tools and websites to generate an offline wallet that contains two keys:
- Public Key: Unlike the private key, public keys can be shared with others to receive tokens to your account. It functions like a bank account number which can be shared with anyone to facilitate transactions.
- Private keys: Private keys on the other hand must be kept safe, and shouldn’t be shared with others. It is more like a PIN or password for your bank account.
2. Printing the wallet
Both private and public keys will be shown on the screen, which can be printed and stored physically. The public keys are generally seen as texts, while the private keys are stored as QR codes.
3. Storage
Once both keys are printed physically, it is important to store them in a safe location. While it is not prone to online threats, it is still prone to offline threats like theft and damage.
4. Access
To use the wallet, the private keys must be transferred to their soft wallet. This process of transaction is called sweeping.
Advantages of Using Paper Wallets
Paper wallets can be considered ideal for users looking to hold their cryptocurrencies offline for the long term. Here are some key benefits that make paper wallets an ideal storage solution:
- Improved Security: Paper wallets are stored offline, which makes them less prone to theft, cyberattacks, and scams. This enables users to store large amounts of cryptocurrencies without the fear of loss for a long time.
- Cost-Effective: Paper Wallets don’t require any subscription fee or a huge lump sum during the initial setup. They are generally free. Users can create keys from any trusted platform and store them by printing.
- Long-term Access: If you want to hold your cryptocurrency for a long term without continuous transactions, a paper wallet can best suit your needs.
- User-control: Paper wallets do not rely on any third-party applications, providing complete authority to their users. This significantly reduces the risk of management failure and loss of funds.
- Backup Solution: Unlike the soft wallet, paper wallets are not prone to technical glitches. So it can be considered a backup to reduce the threat of loss.
Risks and Challenges
Like any other storage facility, Paper wallets also come with significant risks and challenges. However, proper handling and management can avoid serious threats and protect your wallet.
- Physical Damage: As it is stored physically in the form of paper, it is prone to damage from fire, water, and ear and tear. To prevent such damages, the users need to store them in damage-proof containers.
- Theft: Even though it saves you from online scams and theft, a paper wallet is prone to physical theft. In that case, unlike digital wallets, it would be extremely difficult to recover them.
- Printing Errors: If it is printed from an unauthorized computer, the risk of unauthorized access can be high. This can be reduced by printing keys offline, from trusted devices only.
- Inconvenience: To access funds, several additional steps such as scanning, importing the key, etc are required. This may create trouble for users who require frequent transactions.
- Other Errors: Printing keys from unauthorized devices, improper handling, and sharing your keys can lead to an unexpected loss of funds.
With these risks associated with paper wallets and their reduced popularity in recent years, investors now find new alternatives to store their cryptocurrencies according to their requirements. Physical devices like Trezor or a ledger can be used to improve offline storage with improved security and durability. Software wallets on the other hand are still a storage option, as they provide convenience in transactions.
Also Read: Is DOGE A Scam, Security, Or Commodity? An Analysis!
Conclusion
A paper wallet offers a secure solution for storing cryptocurrencies offline. It is generally a physical storage, with both private and public keys printed on a piece of paper. A paper wallet reduces the risk of online theft, scams, and other cyberattacks, making it a go-to for long-term holders, who don’t require frequent transactions. It is also cheap when compared to other storage facilities. However, like any other storage facility, the paper wallet also comes with significant threats. It is prone to physical damages like wear and tear, theft, misplacement, or even loss of wallet. The users need to understand its limitations and figure out precautions to reduce the risks of loss and improve the safety and security of their assets.