What is a Bitcoin paper wallet?

A Bitcoin paper wallet is a physical document that contains your Bitcoin private and public keys, typically presented as a combination of text and QR codes. This document allows you to securely store your Bitcoin offline, making it resistant to cyber threats such as hacking or malware. It's called a "paper wallet" because the keys are printed or written on a piece of paper, but the concept can apply to any non-digital storage method, including engraving on metal.

How Does a Paper Wallet Work?

A Bitcoin wallet consists of two keys:

1. Public Key: This is akin to an account number, and it represents your Bitcoin address. You can share this key freely with others to receive funds.

2. Private Key: This is your secret key, used to access your Bitcoin and authorize transactions. It's crucial that this key is kept safe, as anyone with access to your private key can control your Bitcoin.

A paper wallet simply stores these two keys offline. When someone wants to send Bitcoin to your address, they use your public key. When you want to spend or move your Bitcoin, you need to import the private key into a digital wallet software.

Advantages of a Paper Wallet

• Offline Security: Since a paper wallet is entirely offline, it is immune to many common threats, such as phishing, keyloggers, and other malware. It provides a level of security often referred to as "cold storage."
• Simplicity: Generating a paper wallet can be quite simple and doesn't require much technical knowledge. You can generate keys using a paper wallet generator such as BitAddress.org or WalletGenerator.net, ideally using a computer that is offline for maximum security.
• Cost-Effective: There are no hardware or software costs involved in creating a paper wallet. All you need is paper and a secure printer.

Disadvantages of a Paper Wallet

• Physical Risks: Paper can be easily damaged or destroyed. It can be lost, stolen, or degraded by water or fire. Some people laminate their paper wallets or store them in fireproof safes to mitigate these risks.
• Complex Spending Process: Spending Bitcoin from a paper wallet involves "sweeping" or importing the private key into a digital wallet, which can be complex and might require technical know-how. During the process, you also expose the private key to the online environment, which carries some risks.
• No Recovery Option: If you lose your paper wallet, there is no backup. You lose access to all the Bitcoin stored in that wallet. Unlike some other wallets, there is no passphrase to recover lost keys.

How to Create a Paper Wallet

1. Generate the Keys: Use an open-source paper wallet generator, preferably on an offline computer, to generate the private and public keys. Always ensure that your environment is secure, as any vulnerability could expose your keys to attackers.

2. Print the Wallet: Print out the generated keys and QR codes. It's important to use a secure, local printer to avoid risks like network interception.

3. Secure the Wallet: Store the printed paper wallet in a safe place. Many people use waterproof and fireproof containers, or even make multiple copies in case one gets destroyed.

Is a Paper Wallet Right for You?

Paper wallets are often used by long-term investors who want to keep their Bitcoin offline and don’t need frequent access to it. However, it’s important to note that, due to the physical risks and complex processes involved in spending, paper wallets are generally not recommended for beginners or for large sums without proper precautions.

In recent years, hardware wallets have become a more popular choice because they offer the benefits of cold storage while mitigating some of the risks associated with paper wallets. However, for those looking for a simple, low-cost way to secure a small amount of Bitcoin, paper wallets can be a viable option.