AI Trading


Cryptocurrencies are the latest technological invention that is going to shape the world in a new mold. Unsurprisingly, cryptocurrencies are often compared to the internet in terms of their impact on the micro and macroeconomic structure.

While most blockchains are permissionless platforms, the users need to fulfill some software requirements to start utilizing them. It means that a person who wishes to start using cryptocurrencies such as Bitcoin and Ethereum requires having an internet connection and a digital wallet. Digital wallets are necessary for allowing users to store and manage their cryptocurrency reserves.

What is a Digital Wallet?

AI Trading

A Digital Wallet is a storage space that is reserved for storing and withdrawing cryptocurrencies. A user can’t place their cryptocurrencies in any custodial account such as banks, digital payments platforms, or a private financial account. Therefore, developers provide a dedicated software or hardware wallet where the digital traders can put all their digital currencies and withdraw or deposit them at their discretion. Without a digital currency account, a user cannot claim their ownership over a cryptocurrency much like real money.

What is a Software Wallet?

Digital Wallets are present in several shapes and forms. All digital wallets that are created with programming are called Software Wallets. Most software wallets are by design also hot wallets meaning that they are constantly connected to the internet. Software wallets can be present in the form of a mobile application, a desktop program, a website pocket, or even a web extension. Software wallets allow the users to store one or more types of cryptocurrencies. They can integrate with other cryptocurrency platforms such as DEXs, CEXs, pools, staking platforms, and swaps.

What is a Hardware Wallet?

A Hardware Wallet is another type of Digital wallet that allows users to store their cryptocurrency reserves in a USB-like device. It is worth noting that not every USB device can store cryptocurrencies. It requires special enhancement to allow it to store the supported cryptocurrency variants only.

Hardware wallets are usually non-custodial and cold storage providers. It means that both private and public keys are under the supervision of the users and they are not actively connected to the internet. Hardware wallets are celebrated for providing a better security layer for storing cryptocurrencies that keeps them away from hackers and threat actors.

What is a Paper Wallet?

A paper wallet is a lesser-known type of digital wallet. It is a cold wallet meaning that it is not actively connected to the internet and is non-custodial. A paper wallet is a method of storing Bitcoins that became popular between 2011 and 2016. At present, many consider that it is not a safe and reliable method to store cryptocurrencies.

However, some others believe that with the correct precautions, it can be a very effective method of storing Bitcoins. Paper wallets require a real piece of paper, QR code, and Bitcoin address. Paper wallets are often considered an alternative for a seed phrase or account recovery password for digital wallets.

How does a Paper Wallet Work?

A paper wallet can be considered a sub-classification of a hardware wallet that does not need extensive gadgets and is a considerably cheaper option. A paper wallet is a simple piece of paper with information such as QR codes, private and public keys, and Bitcoin addresses.

The users can take the paper wallet anywhere with them without fearing getting targeted by thieves. It is cheap, easy to manage, and remains useful for a long period. When the user wishes to make a transaction they can scan the code and make the sanctioned withdrawals or deposits. Paper wallets are ideal for traders who wish to HODL their Bitcoin reserves for a long time.

Origin of Paper Wallets

The first ever Paper wallet was invented by Peter Kroll in 2011 with a project named Kroll is the Director of Bitcoin Curacao, a think tank that is dedicated to spreading Bitcoin-related education and making efforts for making cryptocurrencies mainstream. He was working on finding ways to make cryptocurrency storage more secure when he came up with the idea. was started by Kroll in 2011 anonymously. The website was made with a simple HTML code that was able to remain functional without an active internet connection.

The public users can also keep utilizing the page as long as it has finished loading. With the simple HTML webpage, the users could create a new wallet address without an active connection to the internet and remain unreachable by the hackers. The website employs a pseudorandom number generation method by asking the users to scroll their mouse at their discretion and count pixel between movements. It is worth mentioning that most hardware programs can create strong passwords using randomizing methods.

However, these codes come with a time stamp. However, Kroll was able to find a Bitcoin storage method by layering hardware pseudo-randomization with the human-made randomized code that made the paper wallets one of the most secure methods to store cryptocurrencies. Furthermore, in the end, a QR code is added to the paper wallet as a final layer of additional security measures. Kroll mentioned later that his motivation behind creating the paper wallet was to create a cheap, accessible, and highly secure way of storing Bitcoins.

How to Make a Paper Wallet?

Like the vision of the Paper wallet inventor Peter Kroll, just about anyone can create it using simple machinery and with a little bit of guidance. Here are a few simple steps that allow the users to create their first ever paper wallet:

Use an open-source passkey generating websites such as BitAddress or that will allow the user to generate private and public keys.

BitAddress and other websites may ask the users to move around their mouse pointer randomly to create an unpredictable and timeless passkey.

When the website has collected all the information press the highlighted button that says Paper button. It will allow the Bitcoins to be added to the public address on left.

For an added security measure the users can press on the BIP38 mixer that will add a passphrase on the paper wallet to encrypt the wallet address.

Precautions While Creating a Paper Wallet

The method of creating a paper wallet is fairly simple and easy. However, there are many cases when the users end up losing their paper wallets despite following every single step. When it comes to keeping the wallet safe from the reach of hackers, it is important to keep in mind the following precautions and follow them religiously.

The paper wallet generating website should ideally be open-sourced. It warrants that anyone using the website can go and check the randomization protocol and provide better transparency for the users.

Paper wallet code generation sites should be reliable and free from the danger of scams or fraud. It is best to read the online reviews and make sure that the site creators are genuine and reliable.

Once the paper wallet site loads, it allows the users to download the index.html file. The users should make sure that their PC or laptops are free from any type of malware before downloading the file.

After downloading the index.html file, the users should disconnect their internet connection. There is a strong chance of getting attacked by hackers or malware if the users run the index.html file while remaining online.

The users have the option to move their mouse pointers randomly or type numbers without any particular pattern to add the human element of security. When the private and public keys are generated, make sure to never share the private key with anyone else under any circumstances.

Make multiple copies of the private and public keys after the count goes to zero. The printer shouldn’t be connected to the internet when it is printing the code. It is best to delete the cache from your PC and delete the saved webpage, and other traces of the code before connecting it back to the internet.

The printing paper should ideally be lamented to prove it against water damage.  It is also best to use water-proof ink for the same reason. Different code generator index.html is required for creating a paper wallet for different currencies such as Ethereum. Read the instruction on the website carefully before downloading.

When you download a Keystore file from the index.file, do not keep it on a device that is connected to the internet. Store the file in cold storage such as USB etc and also keep a backup in another location. Make sure that all the information such as private, public, passphrase, QR code, and the wallet address is correct and visibly printed on the paper.

The process to make a paper wallet is easy however its concept can feel a little tricky. A person can ask where their cryptocurrency goes when they created a paper wallet. The answer is that a paper wallet is not the actual storage of cryptocurrencies. It simply allows the users to use their software wallet address and assign it to a very unique and secure set of passkeys. The contents of the paper wallet are safe as long as hackers are unable to crack or find out its passkeys.

Keeping the Change with Paper wallets

Cryptocurrency investors can make transactions in change meaning that they are spending a fraction of a full cryptocurrency unit. However, if the users do not have set up a change account they can end up losing the whole crypto unit. Imagine a person with 2 Bitcoins uses 0.5 Bitcoins to make a purchase. A paper wallet cannot store the change therefore the remaining balance in their account can default to 1 rather than 1.5 Bitcoins. However, there is a solution to fix this issue on Paper wallets.

Typically, users import passkeys from their paper wallets to other wallets. It means that they are copying the passcodes. With an imported paper wallet code, users can retain their cryptocurrency change only when they are making transactions using their software wallet. There is another way for creating a paper wallet using sweeping. It means that the users have been assigned a whole new private key address that has been added to the existing software wallet. This method enables the cryptocurrency investors to keep their change and send it to the software wallet by default.

Advantages of Paper Wallets

Admittedly not many cryptocurrency investors use paper wallets today. However, the method is still touted by devout technical experts for its advantages. Here are some of the most important advantages of a paper wallet.

Freedom from Technical Error

Blockchain, smart contracts, and digital wallets are all made of computer programming. Both hardware and software wallets can fail when they are faced with technical or mechanical errors. However, it is impossible for a paper wallet to malfunction because of the simplicity of its composition. There is little to no chance of a paper wallet becoming useless on account of a technical error since it is intrinsically immutable.

Security Protocol

A paper wallet is one of the most secure ways of storing cryptocurrencies to date. They are even stronger in comparison to encryption-based hardware wallets like Nano X and Trezor. A hacker can’t reach the private key that has been secured on a paper wallet. Since private keys are a long and random string of random numbers and alphabets, it is impossible for anyone to just see and commit them to their memory instantly.

Long-term Usage

Paper wallets are ideal for cryptocurrency traders who wish to store their cryptocurrencies for a long duration. They can secure the paper wallet in a secure location and be free from the worry of any hacker reaching their cryptocurrency reserves for years. It is also possible to make transactions using the software wallet while the paper wallet is locked away in a remote place.

Easy Storage

It is very easy for the users to store a piece of paper and in many ways, it even resembles a fiat currency. Since most people are unaware of paper wallets, they might think that the currency is only a foreign currency. Some users also convert paper wallets in the form of a PDF, engraved metal, or other surfaces that can retain the code for years without getting blurred or smudged.

Limitations of Paper Wallets

Paper Wallets are celebrated for their simple construction and easy storage features. However, the technology also comes with a certain amount of risks that should not be ignored or underestimated. Here are some of the most important limitations of paper wallets that the users should be aware of at all times:

Paper Decay

Paper is subject to dangers like natural damage and decay. Insects can eat away the paper like termites. Sometimes, it can be subject to water damage or ink fading away from sun exposure. It can also blur the information due to excessive moisture. There is also a possibility of losing the paper since it is thin and weightless. Meanwhile, it can also fly away by wind or sustain damage by pests.


Thieves can try to break into a safe or a locker that contains a paper wallet. On the other hand, hackers can also try to take a picture of the paper wallet and reconstruct the copy to attack the contents of the wallet reserve.

Printer Malfunction

A printer can smudge the ink or miss out on letters or numbers on account of internal error. In many cases, a printer can be spiked with malware and it can leak all the information on the paper wallet if it is connected to the internet or retains its cache data. In other instances, printers can use cheap ink that fades away with time. There is also a possibility of water damage if the printer ink or paper is not water-proofed.

Human Error

Human error has the potential to mess many things up when creating a paper wallet or while storing it. The method is fairly inexpensive and simple. However, the margin of error connected to it is quite high which has a significant probability of errors and mishaps.

Crypto Change

Paper wallets need to use “sweep” or unique code to make sure that they can store the change from every crypto transaction. However, creating a sweep address for every transaction is very time-consuming and poses the risk of a huge margin of error.


Paper wallets cannot tell users about their existing account balance or the history of their transactions. Paper wallets only enable the users to conduct transactions using random lookups through third-party exploration websites that can create privacy issues since these websites store cookies and spy on the activities of their users. It is ideal to import the private key to bitcoin-qt or rescan for better results.

Key Format

The private key format on a paper wallet is inconsistent. In case the format for the connected software wallet is changed or updated, the users would not be able to access their accounts anymore.

Browser Wallet Errors

Paper wallets do not store any real cryptocurrencies, the remaining balance of the users is often sent to a change wallet. Since all paper wallets are created using a website they are often susceptible to the same issues as Brower wallets.

Brain Wallets

Brains wallets are seed phrases committed to the memory of a user. Paper wallets employ the same sha256 interface as brain wallets which are highly insecure and should not be used.

Digital Address Recycling

Paper wallets depend on an already existing Bitcoin address. This means that they encourage the reuse of a singular digital wallet address that poses a serious security threat.

Raw Private Keys

Paper wallets possess raw private keys which mean that they allow users to create only one private key that can jeopardize the security and privacy of the user. If a user destroys the paper wallet after one transaction or deletes the app, it can harm their reserve since the paper wallet is not part of the deterministic wallet and result in the loss of the master key to their crypto account.


Paper wallets are an ingenious way of storing cryptocurrencies. However, they are only used by blockchain and tech experts since they can understand all the risks involved and take measures to counter them in advance. The average cryptocurrency users can also take advantage of paper wallets provided that they do their research and learn about them in detail first.

AI Trading produces top quality content for crypto companies. We provide brand exposure for hundreds of companies. All of our clients appreciate our services. If you have any questions you may contact us. Cryptocurrencies and Digital tokens are highly volatile, conduct your own research before making any investment decisions. Some of the posts on this website are guest posts or paid posts that are not written by our authors and the views expressed in them do not reflect the views of this website. Herald Sheets is not responsible for the content, accuracy, quality, advertising, products or any other content posted on the site. Read full terms and conditions / disclaimer.

Larry Wright

By Larry Wright

Larry Wright is a Pulitzer Prize-winning journalist and author. He is known for his insightful reporting and his ability to delve into complex issues with clarity and precision. His writing has been widely acclaimed for its depth and intelligence.