I wanted to test the entire process of offloading ADA to a paper wallet, then, restoring the paper wallet to a newly created Daedalus wallet.
When you use your 27 word phrase to restore ADA from a paper wallet to a newly created Daedalus wallet, the restored Daedalus wallet does NOT create a 12 word seed.
This is an easy experiment for anyone to confirm.
So, if something happens to your computer (crash, stolen, etc), how do can you recover your ADA - without a 12 word seed?
You have to use the 27 word seed phrase again.
RobJF,
It’s not clear what “… use the 27 word seed phrase again.” actually means.
What I’m saying is that I did use the paper wallet 27 word seed to restore/create a new wallet in Daedalus. In fact, I did this 3 times.
In each case, NONE of the Daedalus wallets created 12 word seeds.
Is it your experience that when you restored/created a Daedalus wallet from a paper wallet, the system DID create a 12 word seed?
If a computer is then stolen, or crashes, there is no 12 word seed for those restored Daedalus wallets.
You can transfer ADA from a restored wallet to a manually created Daedalus wallet. The manually created Daedalus wallet creates a 12 word seed when originated. However, I have not seen any instructions that this is how IOHK originally intended for restored wallets to be operated.
I had to discover this on my own.
I believe it would create a lot of anxiety for users when they tried to ‘verify seed’ of a restored wallet - only to find that there is no 12 word seed.
After restoring a paper wallet, the seed phrase of the “new” hot wallet is the same 27 word phrase that was used to do the restore.
The new (Daedalus) hot wallet only accepts12 words - no more.
You’d need to use the paper wallet restoration function.
If you like 12 word seed, create a normal wallet and send all your funds from your paper wallet address to the newly created wallet.
RobJF,
I was using the ‘paper wallet restoration function’.
To anyone following this post, I suggest you perform a simple experiment (as I did 3 times)
EXPERIMENT:
1 - Create a paper wallet. Print out the paper wallet certificate, scan the QR code as directed, add the hand-written 9 words to the 27 word seed, re-enter all 27 words to confirm when directed to do so.
2 - Send 2 ADA to the paper wallet
3 - Now, restore the paper wallet. From Daedalus, select ‘Add Wallet’, choose ‘Restore’, then choose ‘Paper Wallet Certificate’, ‘Wallet Name’, ‘Paper Wallet Recovery Phrase’, then, select a Spending Password. Finally, hit the ‘Restore Wallet’ button.
Restoring a paper wallet takes about 2 hours on my machine.
A new Daedalus (hot) wallet now exists. However, it was created WITHOUT creating a 12 word recovery phrase.
Therefore, you will NOT be able to verify the wallet recovery phrase (More, Settings, Verify Wallet Recovery Phrase).
As Siamans (above) pointed out, you will only be able to send ADA from the newly restored Daedalus wallet to another (manually created) wallet with a 12 word recovery phrase. And, you should do so IMMEDIATELY since the restored Daedalus does not have a 12 word recovery phrase. If you computer is stolen, or crashes, you will not be able to recover your ADA from the ‘restored’ Daedalus wallet.
Anyone restoring their wallets from a paper wallet may get the false sense of security that their new, hot Daedalus wallet is safe - when, in fact, it has a huge vulnerability.
As @RobJF has been trying to explain to you, even though its a hot wallet , you will still be able to use 27 words to recover the same wallet in Daedalus - should the machine crash, or if you restore to install it on new machine. Recovering a wallet does not make any changes to blockchain, it just loses the advantage of being offline.
It is not a vulnerability, it would behave the same way - as having 12 word seed, just the exception of you will always be using restore paper wallet functionality instead of recovering/verifying a normal 12 word wallet. Hope this clarifies.
Is it accurate to say that the Daedalus (hot) wallet restored from the paper wallet does not have a 12 word recovery phrase?
… and, therefore, the ‘Verify Wallet Recovery Phrase’ function would not work.
If this is accurate (no 12 word recovery phrase), then, as you say, you can again use your 27 word phrase from the paper wallet. However, this means that you must ALWAYS keep your paper wallet recovery phrase - even though you have ‘restored’ a Daedulus wallet - to ensure recovery in the event of a future computer loss. Am I understanding this correctly?
Your answer also leads to other questions.
If I send ADA from Daedalus to a paper wallet, my Daedulus wallet decreases by the amount I sent to the paper wallet address, and the paper wallet address increases by that amount. However, when I restore from the paper wallet, does the paper wallet amount go to zero? Or, is the amount in the paper wallet kept at the original amount - so another recovery in the future can be made if my Daedalus (hot) wallet is lost/crashes (which would imply that the same amount of ADA exists in two different locations - paper wallet address and restored Daedulus (hot) wallet).
Yes, it’s exactly like any other Daedalus wallet, except 27 words instead of 12.
No, because the paper wallet and the hot wallet created by restoring it reference the same address(es), they’re basically the same wallet. To create a paper wallet is to create a new wallet, but to restore one is different, it is merely making the existing wallet hot. Yes, it is confusing!
I hope that somehow, IOHK can clarify paper wallet restoration.
None of the Youtube videos about paper wallet restoration (Philpa, RickyMac, Crypto Dad) go into the subtleties AFTER restoration.
No ‘Verify Wallet Recovery Phrase’ functionality unlike other Daedalus wallets
Keep your paper wallet 27 word recovery phrase even after recovery
It took a lot of back-and-forth in this post to bring out these subtleties.
Perhaps Daedalus wallets restored from paper wallets should be color coded to help people recognize that these wallets are different.
I believe the Hosk mentioned in an AMA video a year or so ago, that he didn’t really like the idea of paper wallets due to this situation, that you must immediately create another Daedalus wallet and transfer your newly recovered paper wallet fund to it in order to maintain 100% control of your funds. Paper wallets are great for long term storage options, but restoring them should be done with the knowledge that once restored, fund should be moved to a new 12 word wallet immediately.
I know if the bitcoin world, some people have misunderstood this process and lost their BTC.
I agree, I was searching the internet looking for these exact same subtle, yet very important details. Was glad to find you had asked the question and received clarification already.
Another question, did a hot Daedalus paper wallet show up in the balance check? How about a cold (not restored) Daedalus paper wallet? Or, do all paper wallets (hot or cold) need to be sent to normal 12 seed word Daedalus wallets in order to be included in the balance check for the incentivized testnet coming up? Anyone try to balance check a paper wallet using the testnet Daedalus?
Thanks!!
Cold wallets can’t take part in the testnet, I don’t know about the other points.
@SebastienGllmt Could you please comment here, these seem like very good questions.
Edit: Sorry. That’s the second such thing I’ve gotten wrong in 24 hours. Doh! 
Yes paper wallets are included in the snapshot. You can balance check both Daedalus paper wallets and Yoroi paper wallets from the Yoroi extension.
The mainnet version of the Yoroi extension also has a feature to transfer all your paper wallet funds into another wallet and this feature will be part of the full shelley testnet release also
Good news for me, thank you! This was not clear to me on any of the official sites I checked, perhaps I just missed it.
Except for the length of seed, there is no difference between a wallet using 12 and 27 word seed. If you have the seed, you can restore the wallet in any Daedalus on any computer. Restoring the wallet doesn’t make any modification of the blockchain. No one could tell if you or anyone else restored it or not. So it’s perfectly possible to have the same wallet restored on 20 computers. All would see the same addresses and amounts and if anyone would do a transaction, it would be visible to all.
Maybe what’s confusing you is, that there is currently no support for validating seed of wallet restored from 27 word seed. There is already an enhancement request for this:
Hello,
Please help!! I created a Daedalus paper wallet certificate from Daedalus (0.12.1#2.0.1.4178) version. I was trying to recover my fund through my 27 recovery phrase on Daedalus Mainnet(3.2.0#16053), I don’t see any ADA fund. I have my Daedalus paper wallet certificate printed with me as well. Thanks.
Hello,
Did u tried to restore it with the original password?
Cheers,