Paper wallets are a form 'paper' cold storage for cryptocurrency holdings. They are physical documents that contain a public address for receiving cryptocurrency, along with a private key for spending or transferring cryptocurrency stored in that address.
Paper wallets are generated using specialized software that randomly generates a public-private key pair. The keys are then printed on paper, often as QR codes for ease of use.
Since they are completely offline, paper wallets are immune to online hacking attacks, making them a highly secure way to store cryptocurrencies.
To receive funds, you simply share the public address. To spend or transfer funds, you would import the private key into a software or hardware wallet.
While secure from online threats, paper wallets are vulnerable to physical dangers like theft, fire, or water damage. They also rely on the physical document remaining intact and readable, which may not be practical over very long periods.
There's also a risk if the website or software used to create the paper wallet is malicious or insecure, as it could potentially store a copy of the private key or generate keys that are not truly random.
It's often recommended to treat paper wallets as a one-time-use wallet, transferring the entire balance when you wish to spend from it, rather than keeping a running balance. This is due to the way cryptocurrency transactions work, where changes from transactions can be sent to a new address.
Paper wallets are a cost-effective way to store cryptocurrency securely, especially compared to the cost of a hardware wallet.
Ease of Creation:
The process of creating a paper wallet is relatively simple, requiring no technical expertise beyond basic computer literacy.
Lack of User-Friendliness:
Paper wallets can be less user-friendly for those looking to actively manage their cryptocurrency holdings, as they require a more manual process to transfer assets compared to software wallets or hardware wallets.
Paper wallets provide a simple, secure, and cost-effective method of storing cryptocurrency offline, making them a suitable option for long-term investors or those looking for a straightforward cold storage solution.
However, the physical vulnerabilities and the somewhat manual process of transferring assets may not appeal to everyone, especially those new to the cryptocurrency space or those looking to actively manage their holdings.