A paper wallet contains a public and private key pair for making crypto transactions. It is generally created with a key generator program and printed on paper as two strings of characters and two QR codes.
paper wallet contains a public and private key pair for making crypto transactions. It is generally created with a key generator program and printed on paper as two strings of characters and two QR codes. A paper wallet is a noncustodial cold storage wallet — meaning you control the keys yourself, and the wallet is not connected to the internet. While paper wallets were once considered one of the best ways to secure large holdings of cryptocurrency, other methods of cold storage are now the gold standard
The Problems With Paper Wallet Creation
ou may know that bitcoin and similar cryptocurrencies include a change output as part of the transaction process. If you only spend a portion of the funds on a paper wallet, the rest will be sent to a change address . If you don’t set up this change address before transacting, your excess funds will be gone. Let’s say you have 100 BCT in your paper wallet, and you only spend .50 BCT, assuming the other 99.5 BCT will still be there. Unfortunately, it’s gone — and it’s not coming back. This is another reason why other wallet alternatives are preferred over paper wallets.
This brings us to “sweeping” vs. “importing” keys. Importing a key from your paper wallet to another wallet simply creates a copy; spending a portion of the funds would still create the change address dilemma mentioned above, wherein you would need to create a change address or else risk losing some of your funds. This is true even if you spend a portion of the imported key using your software wallet .
Conversely, “sweeping” a paper wallet sends the crypto balance to a new private key on your software wallet. This enables you to safely spend a portion of the “swept” balance and have the change, in the form of a change output, sent automatically to the software wallet you used to sweep it. In most cases, sweeping is the preferred method for transferring funds from a paper wallet.
Using a single paper private key repeatedly as a wallet can be dangerous from a security and privacy standpoint. Instead, you should either use it only once to receive and send funds or create multiple keys manually. The latter option is quite complicated, time-consuming, and may lead to accidentally re-using an address or losing a key.
Issues With Paper Wallet Storage
Paper is fragile. Water, fire, humidity, tearing, crumpling, your dog — you name the destruction method, and a paper wallet has certainly been destroyed in that way. Some people laminate their paper wallets, but if you choose to go this route, be sure to do it at home. You wouldn’t want to take your paper wallet somewhere to get laminated and inadvertently expose your private keys.
Beyond that, you have to protect your paper wallet from being lost or stolen. Some people print off multiple copies and store them in separate locations. It’s like making multiple door keys, with one key difference: the first person through the door keeps all the crypto, and the rest of the keys no longer work. Some people split paper wallets into parts that must be combined to reassemble the secret key. While this reduces the chance of theft — it also increases the chance you may lose the key, depending on how you’ve stored the individual key parts.