How to make a paper wallet
On June 19, cryptocurrency exchange website Bithumb posted a series of tweets declaring that it was disabling its deposit and withdrawal services due to safety issues and asked its users to avoid depositing funds in their wallets until further notice. It later became evident that hackers had breached the South Korea–based exchange and had stolen $30 million worth of cryptocurrency from users’ wallets.
Most users store their bitcoins and digital currencies in online exchanges such as Coinbase, Bitfinex and Kraken. Online exchanges assume responsibility for storing and securing the funds of their users. This provides a convenient experience to the users of those exchanges, many of whom have minimal or no knowledge of cryptography, but it also makes them a very attractive target to cybercriminals seeking to lay their hands on a large amount of hard-to-trace money.
That’s why users who want to take the security of their bitcoins into their own hands use "cold storages," offline stores that aren’t accessible to hackers. One of the more popular types of cold storage is “paper wallets,” which, as the name suggests, are bitcoin wallets made of paper (although they can be made of plastic or metal or any other suitable material). Paper wallets are impervious to online hacks and cyber-attacks, but they come with their own caveats.
What is a paper wallet?
Each bitcoin address associated with a wallet is composed of a pair of encryption keys: a public key that allows other bitcoin holders to send funds to that address, and a private key that allows the owner of the wallet to send bitcoins to others.
Online exchanges store the private keys of their users on their own servers. This means that if anyone manages to hack their servers, they’ll be able to obtain all the private keys and send users’ funds to an address of their choosing.
In contrast, paper wallets print both keys on paper, making sure that they’re not stored in an online location. Most paper wallets also create QR printouts for public and private keys to simplify their use when their owners want to receive or send funds.
How to create a paper wallet
There are a number of websites that can generate paper wallets for you in a few easy steps. Two examples are Bitaddress.org and Walletgenerator.net, which provide you with a simple interface to generate your keys. First, they’ll ask you to move your mouse around the screen to generate data points that randomize the keys:
After you finish adding randomness to the data, you’ll be taken to another page where you can see the printable image of your newly generated keys:
Bitcoinpaperwallet.org basically provides the same functionality, but offers a richer output, giving you a two-sided colorful print-out that you can fold and seal.
Mycelium provides an application that you can copy on a USB thumb drive and directly plug into your printer to generate keys and print out a paper wallet. Mycelium has the added benefit of making sure that your keys never leave any data on your computer.
How to use paper wallets?
As a cold storage, paper wallets are easy to deposit to, but not so easy to withdraw from. Checking the balance of your paper wallet is as easy as typing or scanning its public address into one of the blockchain scanner websites such as blockchain.info or BlockCypher, where you’ll see both the amount of bitcoin in your wallet and the history or transactions.
Sending bitcoins from your wallet to someone else’s address is a bit more difficult. You’ll have to find an online exchange that lets you import your keys. Blockchain.info support this. If you don’t want to risk giving away your key to an online exchange, you can install a software wallet such as Electrum.
How safe are paper wallets?
Paper wallets are hack-proof, but that doesn’t mean they don’t have their own weaknesses. For instance, if someone steals your paper wallet, nothing will prevent them from draining your bitcoins into their own wallet. If they put it back in its place, you won’t find out they’ve stolen your bitcoins until you check your balance online.
As a measure of precaution to make your paper wallet tamper-resistant, you can add a seal to find out whenever the wallet has been opened. Bitcoinpaperwallet.org provides tamper-evident stickers for its paper wallets.
Another problem with paper wallets is protecting them from weather, water and fire. There are many ways a paper wallet can be physically destroyed, and after that, there will be no way to recover your keys. If you plan to spend your funds in the year 2140, when the last bitcoin is mined, you’ll probably need something sturdier than a piece of paper, or at least you need to reprint your wallet every few years.
In many ways, paper wallets are like hiding your money under the rug. You’re in full control of your digital money, but you’re also fully responsible for keeping it safe.