The crypto phenomenon has made people think much more about computer security than they had in the past. Most people have opted for simple, easy-to-remember passwords when it comes to securing their email, social media, and other accounts. However, the stakes are much higher when it comes to crypto. Someone getting into your email account may reveal some private messages. Also, a hack in a crypto wallet means lost money that cannot have restore.
The good news is that there are a wide variety of different ways to secure your crypto. Each of these methods come with their own trade-offs. This in terms of security and ease-of-use, but everyone is likely to find something that works for them. After all, the private keys associated with crypto holdings are just data. One of the common ways people choose to store this data for security reasons is on a piece of paper.
How Does a Paper Wallet Work?
Crypto private keys are just strings of numbers and letters. They can be on a piece of paper and be in a secure place. This alters the security setup of your crypto holdings. This is to something that is more akin to cash than traditional, software-based crypto wallets. Crypto private keys can be difficult to remember or record. However, the reality is this data can also have storage in what is known as a seed phrase. These seed phrases are usually a list of 12 or 24 commonly-used words from the English dictionary.
Notably, a paper wallet is oftentimes used in conjunction with other types of crypto wallets. For example, first-time users of a new software wallet will oftentimes find that the app will ask the user to write down their seed phrase on a piece of paper. This basically creates a real-world backup of the user’s software wallet. Paper wallets are usually as a backup mechanism. However, some people also use them as a form of standalone, long-term storage.
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While the name “paper wallet” indicates that the user is writing down their passphrase on a piece of paper, the reality is other, more durable storage devices can also be in use. For example, there are a number of companies that sell wallets that allow their users to store their passphrases in physical steel. One should note that a paper wallet does not necessarily store all of a user’s funds in one location. A user’s seed phrase can be split in half and be in multiple locations. Additionally, multiple copies of sections of the phrase can be made to prevent potential loss of funds. Finally, one should note that you can still receive funds via a paper wallet, as there is no harm in sharing public keys with those who wish to send you crypto.
Pros and Cons of Paper Wallets
As mentioned previously, each option for storing crypto comes with its own set of pros and cons. Like many other options for storing crypto, the trade-offs with paper wallets mostly revolve around the inverse relationship between security and usability. One should note that paper wallets, when made properly, can be one of the most secure options for storing any kind of cryptocurrency. This is because the funds are in hold in cold storage, which means they are not touching any sort of internet-connect device.
Removing your funds from the internet is a huge advantage when it comes to preventing attacks from potential attackers and thieves. The whole point is to create a decentralized, digital financial system. One where everyone is in control of their own money. That’s lost when you let someone else store your private keys.
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In terms of potential downsides of paper wallets, there are two key negatives to consider. First of all, paper wallets are somewhat difficult to create correctly. If you don’t know what you’re doing, you can end up making your security setup worse. Especially if you had simply let an exchange hold your funds for you. If you simply write down your passphrase on a piece of paper and store it in your house with no other copies. Than you could end up losing all of your money if something happens to that piece of paper. So, if you’re not a technically-inclined crypto user, you may want to opt for a different option for proper crypto storage.
Another potential downside of paper wallets is that it can make it more difficult to send a transaction from your crypto holdings. That said, this form of storage is not usually in use by someone who makes crypto payments on a regular basis. There are potential issues with sending transactions from a paper wallet. Therefore, the best use by those who have an interest in making a long-term investment with their crypto holdings. It is more difficult to send transactions from a paper wallet. However, remember that receiving payments and using strategies like dollar-cost-averaging are still very much possible with this crypto storage setup.
Paper Wallets vs Hardware Wallets
Paper wallets are often compare to hardware wallets due to the fact that they’re both offline crypto storage options. However, hardware wallets have a key advantage. They are easier to use for those who transact with their crypto wallet on a regular basis. Of course, the downside of the hardware wallet is that it has an upfront cost. This is in terms of the physical hardware. One should note that it makes sense to use a paper wallet as a backup mechanism for a hardware wallet. However, it’s important to remember that the paper wallet that backs up the hardware wallet you should protect with the highest possible degree of safety and security. Anyone who gains access to that paper wallet would be able to steal anything held on the hardware wallet.
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