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Paper Wallets vs. Hardware Wallets: The Pros and Cons

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Image credit: Kesu01/Depositphoto

Paper wallets and hardware wallets are the two most common forms of cold crypto storage. Neither have a connection to the web and are thus infinitely more secure than online hot wallets.

But neither solution is perfect. So, what are the pros and cons of paper wallets vs. hardware wallets?

The Pros of Hardware Wallets

It’s now well-established: hardware wallets are much more secure than paper wallets.

Seeing the latest storage solutions at CES 2019 and then later doing a hands-on review of the Nano Ledger X only served to reaffirm what we already knew.

Let’s begin with a look at why hardware wallets are the preferred choice among experts.

1. Secure Element Chip

A Secure Element is not present in every hardware wallet, but it is a core component of Ledger’s devices.

The Secure Element is a chip that adds an extra layer of security to your wallet. It can protect you from side-channel attacks (whereby a hacker tries to match your wallet’s power consumption pattern with your cryptographic key), software attacks, and fault attacks.

Trezor doesn’t use a Secure Element in its device. The company argues that the closed source nature of the chips represents a security threat and goes against its open source ideals.

2. Coin Support

Ledger’s new Nano X supports 1,100 different cryptocurrencies; the Trezor Model supports about 700 coins.

The vast number of supported coins means you can put them onto a single device and manage them all in one place. Ledger has released a new smartphone app to accompany the Nano X that makes coin management even easier.

3. PIN Protection

All your transactions are PIN-protected. More importantly, you will never need to enter the PIN on a computer in a way in which it could be stolen.

Devices like the Ledger Nano X and BitLox Bitcoin Hardware Wallet include a physical method for entering the PIN on the wallet itself. Trezor lets you set an encryption passphrase on top of the PIN protection so it doesn’t matter if you enter it on a compromised machine.

The Cons of Hardware Wallets

And what are the disadvantages of hardware wallets?

1. Cost

Hardware wallets all have an upfront cost. The new Nano Ledger X costs $119, a Trezor Model T is $205, and a Trezor One Metallic is an eye-watering $685. Even the now-dated Ledger Nano S will set you back more than $50.

That level of cost is too much for some, especially those who only have a small number of tokens.

2. Copycats

Given the high prices of hardware wallets, it is tempting to shop around for the best deal. You don’t want to spend a dollar more than is necessary.

Often, that search might lead you to eBay—or worse, Craigslist. Never trust someone who’s selling a device on those types of marketplaces. There are too many copycat devices in circulation; fake hardware wallets could empty your funds without your knowledge. A non-tech-savvy user might be none-the-wiser until it was too late.

To protect yourself, make sure you only purchase a hardware wallet directly from the manufacturer’s online shop. Even if the cheaper one you saw on eBay was legit, the peace of mind is worth the few extra dollars.

3. Paper Backups

Have you ever wondered what would happen if a hardware wallet was lost or stolen? With no obvious way to retrieve the lost assets, it would be a million times worse than losing your cash wallet.

But there is a way to recover your funds if you made a note of your seed phrase. It is a 20-word long phrase that you selected when you set up your wallet. And that seed phrase is almost certainly going to be stored on paper. Ledger and Trezor even provide a nice little card for you to write the phrase on.

Being stored on paper, the phrase is susceptible to many of the same issues as paper wallets. We’ll look at those shortly.

The Pros of Paper Wallets

Okay, what about paper wallets? What are their strengths?

1. Free

There are lots of ways to make a paper wallet; several websites provide free tools. That makes them considerably more appealing to someone who wants to buy a handful of tokens and forget all about them for a few years.

Note: Never pay for a paper wallet, it is a scam if you do.

2. Immune to Malware

There’s a whole lot of malware out there which would love to get its hands on your cryptocurrency. It could live on your computer, network, or smartphone and attempt to steal passwords and keys to gain access to your wallet.

Paper wallets are immune to these threats, assuming you follow the proper guidance when making your wallet.

3. Multiple Copies

Although you shouldn’t be creating hundreds of copies of your paper wallet, it’s easy to make one or two copies and leave them in different secure locations.

That way, you will be protected in the event of loss, damage, and if you can act quickly enough, theft.

The Cons of Paper Wallets

And finally, what about the dangers of using paper wallets?

1. Damage

The most obvious problem facing paper wallets is the paper itself. Ink fades, and paper deteriorates over time. And there’s also the risk of fire and water damage—even if it’s accidental. Coffee can wreak havoc with the readability of a QR code!

2. Insecure Creation Process

From a more technical standpoint, the most pressing security issue with paper wallets is the insecure creation process.

If you follow the process correctly, there is nothing to worry about. However, there are just too many security points. Everything from the tool itself to your Wi-Fi connection with your printer represents a possible threat. Most people make a mistake somewhere.

To make sure there’s nothing wrong with the security of your paper wallets, check out our guide on how to make a paper wallet securely.

3. Usage Problems

Paper wallets have been shown to encourage address reuse. No one wants to make a fresh wallet every time for every transaction.

Security-wise, it’s incredibly unwise. It places both the current and future holders of the specific Bitcoin in jeopardy; it becomes easier for people to discover your identity by tracing the private key’s signature.

Which Is Right for You?

Let us know whether you prefer using paper wallets or hardware wallets in the comments below.

And if you would like to learn more about the different ways to store your Bitcoin, check out our article on the best secure crypto wallets.

Dan Price
In his previous life, Dan spent five years providing investment advice to clients. You might assume, therefore, he was savvy enough to spot the opportunities presented by cryptocurrency in its early days. Sadly, he wasn’t. But that doesn’t mean he doesn’t have a passion for all things blockchain today. He strongly believes in long-term future of the technology and wants to help everyone else understand its benefits. Just don’t listen to his market tips.

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