A paper wallet is the name given to a method of storing bitcoin which involves printing a paired Bitcoin private key and Bitcoin address onto paper and depositing funds into a P2PKH script using the address. Funds can be spent by accessing the physical paper and entering the private key into a wallet. This is usually achieved by scanning a QR code of the private key in Wallet import format (WIF).
Redeeming bitcoins stored using paper wallets
The best way to redeem the bitcoins from a private key is to use the "sweep" feature of certain wallet software. This process creates a new transaction that sends the entire balance of the paper wallet to a new address controlled by that wallet.
Various wallets support sweeping private keys including:
Paper wallets are generally regarded as a secure method of long-term storage of funds; however, there are downsides to using this method.
Printing and print media
Paper wallets require using a printer to transfer them to paper which presents a risk if networked printers are used in an insecure environment.
Additionally, while QR codes have a checksum and robust error correction, print media can be damaged by water, soilage or through crumpling or folding of the paper.
Paper wallets have just one Bitcoin address, leading to address reuse.
Poor user experience
Dealing with raw private keys can be unintuitive and may lead to loss of funds if not managed properly. It is recommended that users of paper wallets understand how they function before using them as long-term funds storage.
Bitcoin ATMs and paper wallets
Many Bitcoin ATMs use a paper-wallet-like system for delivering bitcoins if the customer doesn't have a Bitcoin wallet. The ATMs can print out a private key/address pair onto paper which contain the customer's bitcoins. Ideally the customer should sweep the bitcoins into their own wallet as soon as they can.
This content is based on content sourced from https://en.bitcoin.it/wiki/Paper_wallet under Creative Commons Attribution 3.0. Although it may have been extensively revised and updated, we acknowledge the original authors.