Printing out electronic currency sounds like a pretty backwards thing to do — bringing us full circle around to this thing called “cash”. But actually, there are a few reasons why you might want to store your Bitcoins in a physical format. Read on to find out why, and how, to make a Bitcoin paper wallet.
What is a Paper Wallet?
To be clear, making a paper wallet doesn’t literally mean you print out some Bitcoins. You can’t: Bitcoins don’t actually exist either in a physical sense or even as a block of code.
To understand a paper wallet, you need to understand the fundamental concept of Bitcoin as a public ledger — it is nothing more than a list of recorded transactions between Bitcoin addresses. Owning Bitcoins simply means you have the password to access a specific address — like a folder full of I-Owe-You’s. It’s public, so anyone can look at the long list of IOUs at any point, but only you can write a new one from your address.
When you install wallet software for the first time, it generates a new address for you to use on the Bitcoin network.
However, you can also import an existing wallet, where you tell the software which address it should be using, and the password to access it (although its actually a long encryption key, rather than a “password” in the familiar sense).
That’s where a paper wallet comes in. Paper wallets are simply a physical print-out of that address, and passkey, typically encoded as a QR code for easy import.
Why Would You Want a Paper Wallet?
There are two main uses for a paper wallet. The first is for gifting virtual currency. Rather than asking someone to set up a wallet on their computer beforehand then sending an amount to their address, you hand them a piece of paper — a temporary store of those coins — which they can then import into a software wallet when they want to use it.
At the Dalledega NASCAR race, Dogecoin supporters printed thousands of paper wallets, each loaded with a few hundred Dogecoins, to give away to fans and raise awareness. It was a fantastic publicity stunt which brought hundreds of new members to their Reddit community.
The second main reason is for security. Computers can be hacked, and if your computer contains a wallet file, your Bitcoins can be stolen. A paper wallet is secure because (assuming it’s been created correctly), there’s no trace of the wallet file on your computer. It’s also known as “cold storage”.
Remember, a paper wallet can’t actually be used until it’s imported somewhere, so it’s safe. Or is it?
Wait! Don’t Take a Picture of Them!
A Bloomberg news broadcast which featured paper wallets in a Bitcoin feature serves as an important security lesson for all of us.
As the newscaster was given a paper wallet loaded with $20 worth of Bitcoins, he showed the secret part to the camera. In a few short minutes after, the coins had been stolen by an astute viewer. The viewer had captured the image of both the address, and the secure key to import the wallet, which was encoded as a QR code. The viewer took control of the wallet, and promptly sent the Bitcoins contained within to the viewer’s own address. The transaction being non-reversible, it had effectively been stolen, just by showing this piece of paper to the camera.
The message was clear: paper wallets are not as secure as you’d like to think. The secure key printed on them must be kept private, or they can be stolen in a matter of minutes.
Encrypting the Private Key
That’s where BIP38 encryption comes in: you can encrypt the private key with a password — an actual password, which you choose at the time of creation. You can then show the private key to anyone, confident that it’s useless unless the password is known.
If you’re creating a wallet for your own use, associating a password with it shouldn’t be a problem, but if you’re planning on giving paper wallets away then clearly password-encrypting them is not a good move — just keep the private key secret, and make sure to tell the recipient about the dangers involved.
Making Your Paper Wallet
Making your own paper wallets is actually quite easy. You can in fact do it online, but there are security risks associated since your keys could potentially be hijacked. Instead, I’ll walk you through the secure way of doing this.
Start by downloading this package from BitcoinPaperWallet.com, and then disconnect from the Internet. What you’ve downloaded is a webpage which can be accessed offline (and can therefore be run on any machine with a web browser). Ideally, you’ll also be opening this from a computer guaranteed to not have malware: a reputable Linux Live CD, for instance. I’m not quite that paranoid though, so I’ll just be using my Mac.
With the offline webpage opened, you’ll need to move your mouse around or type in some keystrokes to seed the random number generator. This ensures the encryption can’t be reverse-engineered.
From there, follow the numbered instructions at the top of the page, but you can probably ignore the calibration steps if you have a printer with a paper tray instead of a manual feed. The second step — Print Front — is the most important. It’s here where you can enable BIP38 encryption if you wish. Otherwise just print the front, feed the paper back into the tray for the reverse side, then print the back and cut out.
BitcoinPaperWallet can also be used to generate offline wallets for Dogecoin and Litecoin — just affix this to the URL:
The Premium Option — CryptoCards!
Paper is fine for gifting or printing out lots, but for your own cold storage (or for a really nice gift), CryptoCards offers fire-proof anodised aluminium cards with BIP38 encrypted keys — and they look just gorgeous. Pictured below is the Bitcoin and Dogecoin Cryptocards I purchased for myself.
You’ll still need to use BitcoinPaperWallet to generate the address and the BIP38 encrypted private key, then paste those onto the order form. Other crypto-currencies have different instructions, so check out the FAQ page to learn how to generate those.
Load ‘Em Up
Don’t forget, you’ll have to actually send some coins to the public address listed on the card before they can be of any use.
Will you be gifting some crypto-currency this year, or will you make some paper wallets for your own cold storage? Remember: Bitcoin is not an investment, and so you should never put in more real currency than you can afford to lose.