What Is a Paper Wallet and How Does It Work?

A paper wallet offers a way to store cryptocurrency offline, representing a physical record of the digital keys needed to access funds. This article explains how paper wallets function, guides through their creation and usage, and outlines important security measures to protect your digital assets.

Understanding Paper Wallets

A paper wallet is a physical document that contains the essential information for interacting with cryptocurrency: a public address and its corresponding private key. The public address acts like a bank account number, which you can share to receive cryptocurrency. The private key functions as the password or signature for accessing and spending the funds associated with that public address.

These keys are typically printed as alphanumeric strings and often as scannable QR codes. Because a paper wallet exists physically and is not connected to the internet, it serves as a form of “cold storage.” This means the keys are kept offline, reducing exposure to online threats such as hacking or malware. This offline nature distinguishes paper wallets from software wallets that reside on computers or mobile devices, and hardware wallets which are dedicated electronic devices for storing keys.

Generating and Printing Your Paper Wallet

Creating a paper wallet involves generating a unique pair of public and private keys and then securely printing them. Use open-source software or a trusted website designed for offline use. Disconnect your computer from the internet before generating the keys to ensure they are never exposed to online vulnerabilities.

Once generated, the software will display both your public address and private key, usually as alphanumeric strings and QR codes. Printing these details requires a reliable printer to ensure legibility. After printing, it is advisable to clear any temporary files or print queues to eliminate digital traces of the keys.

Managing Funds with a Paper Wallet

Once a paper wallet is created, receiving cryptocurrency is straightforward. You simply provide the public address printed on the wallet to the sender. The funds will then be recorded on the blockchain as being associated with that public address. The cryptocurrency itself does not reside on the paper; rather, the paper holds the keys that control access to those funds on the blockchain.

Spending funds from a paper wallet involves “sweeping” or “importing” the private key into a software wallet, hardware wallet, or cryptocurrency exchange. Sweeping typically moves the entire balance associated with that private key to a new address within the receiving wallet. If you spend only a portion of the funds, the remaining balance might be sent to a “change address” that you do not control, potentially leading to loss of those funds if not managed correctly. Therefore, it is generally recommended to sweep the full balance to a new wallet when spending from a paper wallet.

Security and Best Practices for Paper Wallets

Safeguarding your paper wallet requires careful attention to both physical and digital security. For physical protection, store your paper wallet in a secure, climate-controlled environment, such as a fireproof and waterproof safe. Consider laminating the paper or using protective sleeves to guard against moisture, tears, or fading ink. Some individuals opt to store copies in multiple secure locations to mitigate the risk of loss or destruction.

Avoid creating digital copies of your paper wallet, such as taking photos or scanning the document, especially with devices connected to the internet. This practice helps prevent the private key from being exposed to online threats. When the paper wallet is no longer needed, it should be physically destroyed beyond recovery, such as by shredding or burning, to prevent unauthorized access to the old keys.