Topic: Hardware wallets vs paper wallets - page 2. (Read 380 times)

Well exactly --but I think it is far different from the hardware wallets, correct me if I am wrong but hardware wallets have a security feature that can protect themselves against malware infection or an OS that is already infected with malware.
I will hardware wallet over a paper wallet, but of course --it will vary always be in your hand how to protect it in a safe place.

[/quote]

Yes this is the whole point of the hardware wallet! They will not be infected, especially if they are used with only an MicroSD Card. Still the paper wallet will get exposed, since it shows the private key in the PDF file it creates.

Actually a private key is nothing more than a 256bit random sequence (e.g. 010110...1001)

The words that you refer to, derive from this 256bit number, if you add 8 bits more (checksum).

Therefore, it is quite simple to get the words, like you mention above.

However, I also generate a QR code, which is what I keep track of in a custom QR template. I took this idea from SeedSigner's QR template. It is basically empty and you fill it up with the information you see on the computer.

Sorry, but I don't have the programming skills to comment on your project. I will check the responses of other members to see what they say. There are those who know these things. Maybe you talked about it in your thread, but I have to ask, why generate private keys if you can generate 12/24-word seeds? They are longer strings and difficult to write down. Therefore, the possibility to make a mistake is greater compared to a sequence of English words, for example.

Hello, thanks for answering. How about this "app" that I have implemented: https://bitcointalksearch.org/topic/m.61539325

What I want to achieve is:
1. run a custom-made program
2. run it on totally offline computer
3. take a note of the private key and write it down as a backup on a piece of paper (2-3 times)

this process allows me to avoid many of the cons you mentioned above.

Essentially, what I wanna say is that I believe that running your own paper-wallet generator offline is the best method in terms of privacy and security.

What do you think ?

Just a few things that spring to mind. There are other similarities and differences of course.

Hardware wallets:

- If you ship the device to your home, they know and store your address. If the data leaks, many more people will know who and where you are.
- You have to trust the developers and manufacturers that they won't mess up and intentionally/unintentionally introduce bugs and vulnerabilities in their native software and hardware. Unless you can go though each line of code yourself (99% of people can't/won't), you will have to trust that the community and security experts have done a good job with it.
- The device (unless airgapped properly) needs to be connected to a computer or phone through a USB cable/Bluetooth to be used. 
- Seeds, private keys, and PIN codes are stored on the device and protected by secure element chips (if available).
- Requires backups of seeds in physical form (highly recommended).
- Change goes to change addresses.
- The coins are spent from the same secure device.

Paper wallets:

- Use TOR or VPN to download the wallet generator to your local machine and no purchase data is stored anywhere.
- You are responsible for your own backups and there are no software or firmware upgrades that can affect you in any way. You are also not affected by NDA agreements or unfixable hardware vulnerabilities.
- No cables, no USBs, or Bluetooth connectivity ever.   
- No digital copies of seeds or private keys. But the same data is imprinted on the paper, making it easier for someone to take note of it.
- Is obviously a backup in physical form.   
- The change could end up in an address you don't have the private key for if you are using such a bad setup.
- The seed/private key has to be imported elsewhere before spending. You could put your coins at risk using a hot wallet for such purposes. Transactions could, however, be created and signed on airgapped systems.

Air-gapped hardware wallets that employ QR codes and cameras as a means to transfer data between devices are considered one of the most secure options of interacting with potentially malicious software. Naturally, this communication channel has its own drawbacks and attack vectors, one of which being a maliciously altered communication channel (hackers trying to exploit vulnerabilities in a hardware wallet by sending specific tampered data via QR-code-encoded messages). You can't keep hardware wallets fully isolated from the outside world (even the most secure and sophisticated ones) unless you never make transactions using them, which is ridiculous.

Well exactly --but I think it is far different from the hardware wallets, correct me if I am wrong but hardware wallets have a security feature that can protect themselves against malware infection or an OS that is already infected with malware.
I will hardware wallet over a paper wallet, but of course --it will vary always be in your hand how to protect it in a safe place.

I haven't really thought about it. I mean if the computer is connected to the internet, or it uses a problematic OS, then there will be a problem no matter what type of wallet you choose to use.

The issue with the coldcard and paper wallets is, that you need to save them on a Micro SD card and open them on a Computer to be able to view them. This will always compromise the wallets if you dont use a special computer for it. Almost seems like they dont want you to use that feature.

Thanks to your guidance and info from previous posts, I have identified that my key-pair generator was based on a completely wrong implementation haha! Need to start it over...

You can use any old computer as an airgapped device to either run a digital cold wallet, or to securely generate paper wallets. An old desktop or laptop works well. I always suggest opening up the device in question and physically removing any connectivity hardware, such as ethernet cards, WiFi cards, Bluetooth chips, etc. That way you can be certain you will never accidentally connect to a network and risk your data or your coins. Once you've done that, you should format the device and install a good open source Linux distro of your choosing.

Once you have a permanently airgapped device, then you can install software such as Bitcoin Core or Electrum to generate and run an airgapped wallet. You would create a complementary watch only wallet which contains only your public keys or addresses on your internet connected computer in order to watch your addresses for incoming transactions and so on. You can then use this watch only wallet to create unsigned transactions, move the unsigned transaction to your airgapped device via either QR codes or a USB drive to be signed, and then move the signed transactions back again to be broadcast to the network.

Alternatively, you can use your airgapped device to generate paper wallets. For paper wallets, I much prefer using a seed phrase to generate an entire wallet rather than a single key pair for a variety of reasons. It means I can have multiple addresses rather than just one, which is better for privacy. I can create my paper wallet by writing down a seed phrase accurately by hand. Writing down a key pair is prone to errors, and printing a key pair adds additional risk in that the printer may be WiFi capable or have internal storage and so on. Importing a seed phrase also avoids the risk of importing a private key to some software which will send your change to an address you do not have saved anywhere and will therefore be lost. To spend from the paper wallet it should only ever be imported back on to your airgapped device and spent from in the same way I described above for a digital cold wallet.

Yes, a ColdCard is an airgapped hardware wallet.

I would agree with this. Every time you have to go and get your paper wallet out of its secure storage location and import it in to a digital device in order to make a transaction from it, there are risks involved. The fewer times you do this, the less risk.

I'm more fond of having a paper wallet for some reason (practicality, probably?). I still have my Ledger sitting unpacked, I thought that I was going to do it, but in the end, I gave up.

It may be better to generate a seed phrase and have a HD wallet instead of dealing with a single private key and a single address. In this way, you can have numerous addresses all generated from a seed phrase. Using a same address for all your transactions may not be good for your privacy.

Well for now I have a coldcard and I am happy with it. But, my next project will be to create my own key pair generator and create my own paper wallet and keep it eternally, only depositing btc and never withdrawing

Paper wallets are more like login/password for your banking application; you can use them to access your deposit account, but they themselves don't provide you an option to withdraw funds. I mean, you still need a banking application with UI you can interact with to do manipulations with your balance. That's the main drawback of paper wallets: with them, you need to always rely on external (and probably insecure) software to sign and broadcast your transactions. Hardware wallets are way better in this sense because no matter what software you will choose, the private keys remain isolated on a device's secure element, whereas paper wallets hold private keys in the open. If in doubt, then paper wallets are definitely not for you. At least for now. Keep it simple and buy a reliable device created by people who are experts in security but choose only with open-source codebase.

What matters is how you generated your wallet and how you use it.
If you generate your paper wallet and use it in the correct way, you can send fund from your wallet whenever you want without any problem.
In the case you generate your paper wallet in the incorrect way, your fund may be stolen even if you have never sent any fund from that.

As far as I have understood, paper wallets act mainly as deposit accounts, where the optimal usage is to accumulate BTC and make as less withdrawals as possible. Am I correct?

With hardware wallets you can generate multiple addresses, send coins quickly, make additional passphrases, create multisig setup, etc.
Paper wallets are still usable but they are used much less nowadays, there is nothing wrong if you use both of this options.

You obviously can't hack paper, but someone can find them, duplicate or take picture of them and steal your coins.
Paper wallets are lately used a lot in scamming people, there was many reported cases in Australia, scammers tricked people in thinking they found free bitcoins.
This means that paper wallets have been used to make phishing attacks with success.

USB sticks are worse than paper, and I prefer keeping backups in physical form, not in digital.

This sounds like a great idea and thanks for the knowledge transfer. Could you elaborate more? I am interested in what you say. What devices are you referring to? Can you give me specific mentions? I know what airgaped means, but I thought my coldcard already meets these criteria

That's not how seed phrases work. The process of using a seed phrase to generate key pairs is a one way process via various hash functions. You cannot start with a private key and derive a seed phrase which produces that private key, unless you are doing something very non-standard which I absolutely would not recommend.

I would say the main benefits of a hardware wallet over a paper wallet is that they are much easier to set up and configure for the average person, and they are also much easier to spend from in the future. Paper wallets are a poor choice for the majority of crypto users, as they do not have the ability to set them up in a safe and secure fashion without doing something wrong, relying on third party software, leaking information online, etc., and will also tend to import them in to a hot wallet when they want to spend from them. Paper wallets can be very safe, but only if you really know what you are doing with them. You should be using a permanently airgapped device (i.e. not just one which is temporarily offline) to create them, and they should only ever be imported back on to this permanently airgapped device to sign airgapped transaction when you want to spend from them. I would also suggest using verified and open source wallet software such as Bitcoin Core or Electrum to generate your entropy/key pairs/seed phrase.