A paper wallet is a way to store Bitcoins that involves printing the Bitcoin addresses and private keys directly on a piece of paper. When done properly, paper wallets are one of the safest ways possible to store Bitcoins.
A Bitcoin private key can be represented in several formats, but is typically a string of numbers and letters no more than about 51 characters in length. This is easy to print on paper, and if kept secret, can securely hold an unlimited quantity of Bitcoins.
Producing safe paper wallets
Several tools exist for producing paper wallets, including pywallet, vanitygen, bitaddress.org, LinuxCoin, and Bitcoin Address Utility. Paper wallets must be produced securely in order to be safe, because any leak of the private key constitutes the ability for an attacker to steal any present and future balance of the address. Consider the following:
- Paper wallets should be produced on a computer not connected to the Internet.
- Be aware that malware often allows a remote third party to view your screen and see your keystrokes, and these can compromise the integrity of your paper wallet. Also consider that antivirus software cannot completely rule out the possibility of malware. However, using bootable CD's prevents the vast majority of malware from being able to run. If you can generate a paper wallet with a bootable CD such as LinuxCoin, the likelihood of malware being able to compromise your keys is very low.
- The private keys of paper wallets should never be saved to a computer hard drive. You should also never scan your paper wallet into your computer or type the private keys or save them in e-mail, except at the moment you are redeeming the balance.
- A web-based paper wallet generator should be written so that all of the generation happens on your computer, not the web server. After you load the paper wallet generating website in your web browser, you should disconnect from the internet, and observe that the paper wallet generator continues to function. Afterward, you should close your browser before reconnecting to the internet.
- A paper wallet generator should use an appropriate source of random numbers (entropy). This means that the generated addresses aren't predictable. If the addresses come from a predictable or partially-predictable pattern, someone else who can predict the pattern addresses can steal the balance. A safe way to generate addresses is from a passphrase, where you provide a very long unguessable passphrase (at least thirty characters - even if it is just mashing random characters on the keyboard). This way, you as the user are in control of the randomness and potential predictability of the addresses.
In addition, third parties such as User:Casascius offer pre-generated paper wallets for sale. Assuming that the provider has properly generated the paper wallet in a secure manner, the only person who can steal balances from the paper wallets is the person who created it. Depending on your viewpoint, this may or may not be an acceptable risk, depending on the balance you intend to store on the paper wallet and your ability to achieve recourse in the event of a problem. If you are able to produce your own paper wallets securely, doing so ranks among the most effective of ways to safely store Bitcoins.