What Is a Paper Wallet? – Understanding, Pros, Cons, and More
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What Is a Paper Wallet?
A paper wallet is an offline mechanism for storing bitcoins. Unlike fiat currency, there is no physical representation of a bitcoin (or most other types of cryptocurrency).
Instead, wallets used to store digital tokens are usually software programs that help facilitate updates to the blockchain ledger when transactions made.
Paper wallets are different from so-called hot wallets because they operate separately from the Internet. However, they still do not store physical bitcoins; the paper quality of these wallets refers primarily to the method of access for the cryptocurrency owner.
Paper wallets were primarily popular in the early years of bitcoin. In recent years, cryptocurrency users tend to explore other methods of securing their holdings.
Understanding a Paper Wallet
Like a hot wallet, a paper wallet also makes use of public and private keys.
Cryptocurrency users wishing to store their holdings in a paper wallet typically go through printing the private key onto a piece of paper.
For those interested in setting up a paper wallet, the first step is to visit a wallet generator site that will create keys and corresponding QR codes at random.
It generally advises that users unplug their Internet access while the keys are generated and wipe their Internet history after the tickets create.
Ideally, they’ll be generated on a brand-new computer to avoid any malware interference altogether. Of course, this won’t be feasible for most users, but everyone should—at the very least—run a malware check on their computer before generating the keys.
Please print out the codes to keep track of the paper: do not let it become damaged or lost.
The codes can scan to access additional information about the wallets. But a user must have a “live wallet” (one connected to the Internet) to facilitate transactions.
The live wallet can “sweep” the paper wallet, effectively transferring coins from the paper wallet to the live wallet.
Pros and Cons of Paper Wallet
Physical wallets long considered one of the safest ways to store bitcoins. If properly constructed and provided that certain precautions take, it will be nearly impossible for a hostile user to access your bitcoin holdings.
A paper wallet considers an extremely secure way to keep bitcoins safe from cyber-attacks, malware, etc.
But it’s important to remember that it, not the bitcoins print out like regular currency. The information store in a bitcoin wallet or digital wallet that gets printed out.
The data appearing on the wallet includes the public key (wallet address). It allows people to transfer money into that wallet. And the private key, which gives access to funding spending.
Thus, bitcoins themselves not store offline—the crucial keys store offline.
This form of cold storage confers enormous security advantages.
The user is more or less invulnerable to cyberattacks and malware because it is simply not possible to access a user’s private key via those avenues.
Of course, the safety of these physical documents cannot entirely guarantee either.
If a would-be hacker discovers your paper wallet’s location and physically steals it, they can access your bitcoin holdings. Some users hide or disguise the paper wallet.
The paper wallet should also protect from physical damage; if the keys fade and can no longer scan, the user will never again access the bitcoins sent to that address.
Even using the incorrect type of printer (non-laser printers can allow the ink to run) may damage the paper wallet.
While paper wallets offer security advantages, they also come with risks—some of them severe.
It prints a piece of paper that contains keys and QR codes that use to facilitate cryptocurrency transactions.
Because they remove from the Internet, at one point, paper wallets consider being more secure than other forms of cryptocurrency storage.
Many investors believe that risks associated with losing, misreading, or damaging the paper wallet may outweigh the potential security benefits.