Paper wallets for bitcoin beginners

Paper wallets are bitcoin private keys printed on paper. Often the paper wallet also includes the corresponding bitcoin address for convenience, but this isn't necessary because it can be derived from the private key. Paper wallets are a very effective way to create backups or offline bitcoin storage, also called “cold storage.” As a backup mechanism, a paper wallet can offer security against the loss of key due to a computer accident such as a hard-drive failure, theft, or accidental deletion.

As a “cold storage” mechanism, if the paper wallet keys are generated offline and never stored on a computer system, they are much more secure against hackers, keyloggers, and other online computer threats.

With the piece of paper safely locked away, you can continue sending bitcoins to the associated bitcoin address for safekeeping. When you eventually decide to spend your saved bitcoins, you can use the import private key or import paper wallet function that most Bitcoin wallet programs include. At this point, your bitcoins will no longer be in cold storage.

If you want to spend only some of your saved bitcoins and keep the rest in a paper wallet, after importing your private key into a hot wallet, you should immediately store the remainder of your bitcoins in a new paper wallet (paper wallets are one-time use only). But be sure to prepare the new paper wallet ahead of time before importing bitcoins from the old paper wallet.

Provided you maintain the paper private key in a secure place, the paper wallet method is ideal for storing large amounts of bitcoins indefinitely. However, keep in mind such physical risks as flooding and fire. Also, do not scan, take photos of, or expose your paper private key to other methods of duplication, or you will compromise your paper wallet. Your bitcoins are only as safe as the
least secure method by which you store your private keys. In particular, note that some office photocopiers maintain records of every document they copy. The safest way to make a duplicate of your paper wallet, which is recommended, is to clearly handwrite a couple of extra copies and store those copies safely.

Paper wallets come in many shapes, sizes, and designs, but at a very basic level are just a key and an address printed on paper. The picture below shows Simplest form of a paper wallet—a printout of the bitcoin address and private key.

Paper wallets can be generated easily using a tool such as the client-side JavaScript generator at bitaddress.org. This page contains all the code necessary to generate keys and paper wallets, even while completely disconnected from the internet. To use it, save the HTML page on your local drive or on an external USB flash drive. Disconnect from the internet and open the file in a browser.

Even better, boot your computer using a pristine operating system, such as a Linux bootable cdrom . Any keys generated with this tool while offline can be printed on a local printer over a USB cable (not wirelessly), thereby creating paper wallets whose keys exist only on the paper and have never been stored on any online system. Put these paper wallets in a fireproof safe and “send” bitcoin
to their bitcoin address, to implement a simple yet highly effective “cold storage” solution.

The picture below shows an example of a simple paper wallet from bitaddress.org:

The disadvantage of a simple paper wallet system is that the printed keys are vulnerable to theft. A thief who is able to gain access to the paper can either steal it or photograph the keys and take control of the bitcoin locked with those keys.

A more sophisticated paper wallet storage system uses BIP-38 encrypted private keys. The keys printed on the paper wallet are protected by a passphrase that the owner has memorized. Without the passphrase, the encrypted keys are useless. Yet, they still are superior to a passphrase-protected wallet because the keys have never been online and must be physically retrieved from a safe or other
physically secured storage. The picture below shows a paper wallet with an encrypted private key (BIP-38) created on the bitaddress.org site.

Paper wallets come in many designs and sizes, with many different features. Some are intended to be given as gifts and have seasonal themes, such as Christmas and New Year’s themes. Others are designed for storage in a bank vault or safe with the private key hidden in some way, either with opaque scratch-off stickers, or folded and sealed with tamper-proof adhesive foil.

The picture below shows an example of a paper wallet from bitcoinpaperwallet.com with the private key on a folding flap.

And the picture below shows an example of bitcoinpaperwallet.com paper wallet with the private key concealed.

Other designs feature additional copies of the key and address, in the form of detachable stubs similar to ticket stubs, allowing you to store multiple copies to protect against fire, flood, or other natural disasters. The picture below shows an example  of a paper wallet with additional copies of the keys on a backup “stub”.