As cryptocurrencies gain popularity, there are more scams and hacks than ever. From scammy ICOs to shady exchanges, fake wallets to pyramid or Ponzi schemes, phishing scams to pump and dump groups, impersonators to ETH giveaway scammers on Twitter, there is a risk, more than ever, of losing one’s crypto tokens to a stranger who often cannot be tracked easily.
It has become more important than ever to store one’s cryptocurrency in a secure place—and while there are many options, none is as safe as a paper wallet.
One reason for the popularity of Bitcoin and other cryptocurrencies is that there is no centralized authority, such as banks or other financial institutions, to process and approve transactions. This means faster transactions and lower processing costs. Also, due to the immutable nature of these transactions, once the funds are transferred to an account, it is not possible to reverse that.
To top it off, the pseudonymous nature of blockchain records make it difficult to track the beneficiary. But on the flip side, all these “features” also mean scammers and hackers can steal the crypto tokens and the transactions will still not be reversed.
In the blockchain era, it falls upon the holder of the funds to employ sufficient safeguards, and the kind of wallet being used is one of the most important decisions in that line of thought.
There are various types of wallets; some wallets let you store your tokens but do not provide the ownership. For example, most crypto exchanges provide a wallet. However, when funds are in that wallet, it means the exchange owns these funds (and has to be trusted like a bank). So how does one gain the ownership of their tokens?
Private Keys = Ownership
Private keys are like passwords that give full access to your crypto tokens. Ownership of private keys is ownership of the tokens. Keeping the private keys safe is of utmost importance. This is an important consideration while deciding on the type of wallet that one wants to use.
Types of Wallets
There are various kinds of wallets, each with its own advantages and disadvantages. There is no solution that fits all needs, so it is up to the user to decide. Wallets can be categorized as hot wallets and cold wallets.
Hot wallets, by nature, are connected to the internet. Online wallets, exchange wallets, cloud wallets, desktop and mobile wallets fall under this category. They provide faster access to funds for trading or spending. But they run a greater risk of being hacked because they are always connected to the internet.
Cold wallets are offline and disconnected to the internet. Hardware wallets and paper wallets fall under this category. Hardware wallets are usually like a thumb drive that the user plugs into a computer to transfer and manage funds.
Paper wallets take this a step further and eliminate any need of electronic interface. Paper wallets involve printing private and public keys on a paper and storing it offline in a secure physical place.
What Is a Paper Wallet?
A paper wallet is where private and public keys are printed in the form of a QR code. This code can be scanned for future usage.
Why Use a Paper Wallet?
A paper wallet is generally considered better and safer than any other type of wallet for the following reasons:
1. It’s Easy to Use
It does not take a lot of effort or technical knowledge to create a paper wallet. Following a few easy steps makes your crypto tokens much more secure. Hardware wallets, by comparison, are much more complicated.
2. It’s Offline
This is a no-brainer. The piece of paper on which the keys are printed becomes the currency itself. It is literally like a high-value cashier’s check that can be used or transferred to anyone in the world. Online hackers and scammers cannot reach this piece of paper lying in your locker.
3. No Hardware Problems
Paper wallets have an uncomplicated physical existence. Hardware wallets are susceptible to damage, software issues (although they rarely have this) and malfunctioning. Paper wallet is the simplest form of holding cryptocurrencies.
4. Easy to Nominate Someone
One problem that the cryptocurrency space is grappling with is nominating someone, such as a spouse or kids, in an unfortunate event where something happens to the owner of the crypto funds. No one will have the password to the exchange wallet or know the code to a hardware wallet. A paper wallet is easily stored as a part of all the valuable assets in a locker or a physical space.
A trusted person in the owner’s immediate circle of friends or family could know about the wallet and funds without ever accessing the money until an event where the owner is incapacitated.
How to Create and Use a Paper Wallet?
So how do we create a paper wallet and use it? We will follow a simple set of instructions to create your first paper wallet. The creation of a paper wallet is usually facilitated by a software program which can then be deleted.
Follow the steps listed below:
Step 1: Readying the Computer
Since the creation of paper wallets is still on a computer, there will always be the slight risk of a hacker/malware trying to capture your keys through this process. So it is advised that you do it on a computer you trust—and not on a public/work computer, nor a computer owned by someone other than you. Even then, you should know that this computer is void of viruses and/or malware. Have your antivirus up-to-date and scan the computer for any security issues.
Another thing to note here is that this process of generating a paper wallet should not be performed on public Wi-Fi. Intercepting information on such networks is very easy, and that would mean a bad actor could direct you to a phishing site and steal your funds.
For extra security, you could run an out-of-the-box operating system and that would involve another step in readying your computer.
Step 1.1: Setting up an Ultra-Secure Environment
This is an extra cautious step and may not be suited for everyone. But if you want to make sure absolutely nothing goes wrong while you create your paper wallet, this is for you.
In this step, download the latest version of the Ubuntu operating system and install it on a pen drive. You then run this operating system to make sure you create your wallet in an ultra-secure environment. You will need to download LiLi, a program that will let you install and run Ubuntu from a USB drive. In this case, you will also need to download the Wallet Generator zip file and then reboot your computer in Ubuntu mode.
If you are not setting up this ultra-secure environment, you can continue with step #2.
Step 2: Downloading the Program
Step 3: Download the Zip File
Step 4: Go Offline
Once you have downloaded the files, it is best to go offline. You should completely disconnect from the internet. This creates a secure offline environment for generating keys.
Step 5: Generation of Keys
You will see random numbers being generated and a countdown to “0” as you move your mouse. This just adds another variable in generating your keys. Once the keys are randomized, your public and private keys will be generated.
Step 6: Generated Keys
You will see two bar codes. One with green sign saying “Share” and the second with a red sign saying “Secret.” The green one is your public key. You can transfer the funds to this address. The red one is your private key.
Step 7: Print and Preserve
You will be provided with a printable page with basic instructions. Print this and preserve it.
Step 8: Cleaning Up
After the wallet is generated and secured, it is advisable to delete the program files and the web history. You can now connect to the internet.
Step 9: Making It Tamper-Proof
Tamper-evident technology has several practical uses and applications, from voting machines to contract law documents. It’s also an effective way to secure your paper wallet.
This is to make sure you hide the private key from sight and someone has to “break a seal” to access those keys. This way, no one is accessing your paper wallet even if it is in your drawer or a locker. You can Google “tamper-evident seals” and buy one to securely fold your private key and seal it.
Step 10: Making It Harm-Proof
There is also a risk of fire and water damage, or just the natural decay of paper. An easy way to prevent this is to create a few copies and store them in different secure locations.
A second strategy would be to print it on a material that is more durable and water-proof. This would require a specialized printer, but if you wish to store your Bitcoin for many years or decades, this might be a worthwhile expense.
You now have your funds secured in a paper wallet. This piece of paper is worth the entire value of your funds. However, it is not possible for anyone to steal your funds unless you share this paper wallet with them.
Paper wallets may require a little effort to generate but they are the most secure form of storing cryptocurrencies to date. If you plan to retain or “HODL” your funds for the long term, it is well worth the effort invested.