Bitcoin paper wallets have off late become quite a decent solution to store Bitcoins safely. With the rapid expansion of Bitcoin, there is a growing concern for security of bitcoins. Currently there are several different methods to store bitcoins. There are many digital wallet clients, from online wallets like Coinbase, blockchain.info, to mobile bitcoin wallets and paper wallets. All online and digital wallets have internet access while bitcoin paper wallets are the exact opposite. They are a totally offline solution for storage of bitcoin private keys. As a result they have the least risk of compromisation and other form of loss of bitcoins because Bitcoin paper wallets are completely offline and are safe from online threats such as remote administration tools, Trojans, malware, and botnets. Moreover, with the recent compromises of wallets, especially the Bitstamp hot wallet hack which resulted in the loss of roughly 19,000 bitcoins, we need to ensure that our funds are stored safely. Hence, here at Best Bitcoin Wallet, we regularly bring out tutorials and quality information on how to store Bitcoins safely.
Let’s put bitcoin paper wallets under our microscope:
To understand the key differences and working of a bitcoin paper wallet and other wallets let’s have a look at digital wallet clients and online wallets first.
The most common forms of Bitcoin wallets are the digital wallets basically the ones we use for desktop, mac, pc. The most popular digital wallet client is the official Bitcoin core wallet available at the bitcoin.org website. It is developed by the Bitcoin core development team.
For beginners, it’s quite simple to use. You can create and address for sending and receiving bitcoins. For security you can encrypt the wallet with a password of your choice, though you should stick to something which is as random as possible and is comprised of uppercase, lowercase and special characters along with numbers. The whole wallet’s data or the private keys to your Bitcoin addresses are stored in a single file, the “wallet.dat” file which is located in a hidden folder, “.bitcoin”. If this file is lost you lose your bitcoins with it unless you implement proper backups in different locations. In addition to this, if somebody steals your wallet.dat file, they can gain access to your Bitcoin funds, hence it is necessary to encrypt your wallet. So if your hard drive crashes or you accidentally delete the wallet you risk losing your bitcoins. Not sure of what public keys and private keys are? Well, here is a simple description of them.
Public Payment Address(public key): If anyone wants to send you Bitcoins, they would send them to this address, the public address. These addresses are public, and there is no risk in sharing them. A Bitcoin address is basically a string which comprises 27 to 34 alphanumeric characters starting in either a 1 or a 3,(Note: If an address starts with a ‘3’, it means that it is a multi- signature wallet). The address is often shown as a QR code to facilitate ease of transactions.
Private Key: The private keys are precisely the keys which give you access to your coins, if anyone obtains it, they can withdraw the coins available in the wallet.These keys can also be shown as QR codes. When you scan this QR code you will get the exact key required for access. Scanning of private keys is usually done in paper wallets. It is advised that you shouldn’t store your private keys on your workstation, online storage(cloud storage, etc) or anywhere in the world wide web. This is because they are exposed to thousands of online viruses, malware, Trojans, botnets and remote administration tools.
Moving on to web based online wallets, they are similar to digital wallets in technical view except that you need to access the online Bitcoin wallet service provider’s website and then access the wallet by logging in with your credentials. Several such online services are currently available, and some of them link to mobile and desktop wallets. These online wallets replicate your existing addresses between the various devices that you own. Coinbase and Blockchain.info are the market leaders in the online wallet sector, with blockchain.info having over 2.766 million wallets while coinbase, on the other hand, has 2.1 million wallets as stated by their website.(note: numbers will vary as time passes)
One major advantage of online wallets is that you can access them from anywhere in the world, regardless of which device you are using as your wallet is hosted on the internet therefore giving you flexibility and ease use. However, there lies a much bigger disadvantage in online wallets. The organization running the website is in charge of your Bitcoins private keys if you view it from a different aspect, though services like coinbase are now allowing you to have accessto your wallet’s private key. The wallets are hosted online which are prone to many attacks and hence, your Bitcoins are at stake.
Now, bitcoin paper wallets are very different from other wallets. They are literally, a Bitcoin wallet on a paper, away from the internet. Unlike digital and online wallets, paper wallets don’t store the private keys anywhere. They have QR (quick response) codes to facilitate ease of use.
Each time you want to make a transaction, you have to scan the QR code with an app and a private key will be generated.This very private key will be used only once for a transaction you want to make.Paper wallets generate unique qr code and private keys for each transaction.Some wallets have taken security more further by adding a specific time to input the generated private key.
The biggest advantage of paper wallets over others are that you can print the QR code and keep it safe somewhere offline.You can print multiples to be sure.So this gives you a technical difficulty proof solution.Even if your hard drive crashes or the pc breaks down,you can still get your coins with the qr code you have stored offline.As long as you have the QR code you have your Bitcoins.This is what paper wallets are based on.
How to create a bitcoin paper wallet:
Let me give you a step by step walkthrough to create your very own Bitcoin paper wallet. Here I will be using bitaddress.org. Let’s get started.
First of all, navigate to bitaddress.org in your browser. You can use this for generating many different types of bitcoin wallets but we will be using this website to make a bitcoin paper wallet
bitcoin paper wallet
Create some randomness for your Bitcoin address by typing characters into the form or moving your cursor around the screen. You will be able to see green dots along your cursor when you move it, which signify random generation of the Bitcoin address and the codes will be changing accordingly.
After enough randomness is generated, you will be presented with your public keys, private keys and their respective QR codes. This is not what we want to use.
Next, click the ‘Paper Wallet’ tab on the top.
Set the number of ‘Addresses to generate’ and then click ‘Generate’. You can also customise your wallet, use selecting “hide art” and using BIP38 encryption.
After the wallets are generated click the ‘Print’ button to print them. You will be asked to select the printer you want to use.
Finally, you can scan the public address QR codes and begin to deposit coins. Similarly, you can scan the QR codes of the private keys to withdraw available funds.
Now, you are the proud owner of your very own operational Bitcoin paper wallet. It will give you more integrity and peace of mind compared to others. No matter how secured other wallets claim to be there is always risk of theft in the internet.
As Bitcoin gains more popularity and value, it will be the prominent target of fraudsters and hackers. Thus, we should implement strong security measures to secure our funds. Paper wallets might be a safe option but beware that even paper wallets have their own disadvantages. For example, people could steal the paper wallet and use them. In addition to this, if we withdraw funds from a paper wallet, we need to scan the private key on our device which is connected to the internet, thus, your safe Bitcoin paper wallet gets vulnerable to online malware. Hence, it is no more a secure online wallet. In order to tackle this, we should create another paper wallet to store your funds safely offline.