In the cryptocurrency industry, security concerns are notorious, whether trading on a centralized exchange or engaging in decentralized finance where hacks have become common. To address these challenges and create a safe space for participants, various technological implementations are introduced, and one such innovation is the Multi-Party Computation (MPC) wallet, which adds an increased level of security and safety for users.
A Multi-Party Computation (MPC) wallet is designed using cryptographic methods to safely distribute private keys among different parties, ensuring that no single party has full access or control over the wallet. This method provides extra safety with no single-point failure.
Stringent security is crucial for the industry, especially with the potential for massive adoption. This article delves into MPC wallets, exploring how they work, their pros and cons, and, more importantly, how they differ from other wallet types.
Understanding Multi-Party Computation (MPC) Wallet
The concept of the Multi-Party Computation (MPC) wallet relies solely on Multi-Party Computation (MPC). Multi-Party Computation (MPC) is a security method introduced in the 80s, that allows different parties to compute together without exposing their details to one another during the process. The essence is to create a safe environment for collaborative computation, safeguarding individual interests.
To illustrate MPC, think of a multi-lock treasure chest with five people, each having a key but unable to see others’ keys. All keys are needed to open the chest. This analogy highlights how MPC enables a group to collectively perform an action, like accessing the chest, without revealing their individual inputs or keys to others.
In the context of MPC wallets, this concept is implemented by distributing the private keys, which enable wallets to allow and confirm transactions, among multiple parties, known as ‘shares.’
To conduct or complete a transaction on these wallets, the involved parties must tender their shares. It’s important to note that not all shares need to be tendered before a transaction can be completed; there’s a minimum threshold. This ensures that the wallet remains accessible to avoid delays in the absence of one or more parties, depending largely on the protocol.
In some cases, all parties are required to submit their ‘shares,’ but this can be done at different times, and the system will process the transaction once all inputs are received. While Multi-Party Computation (MPC) shares similarities with multisig wallets, there are distinct nuances between them, as with other cryptocurrency wallets.
MPC Wallets Vs Multisig Wallets
Multisig wallets, also known as multi-signature wallets, require two or more signatures (private keys) to finalize a blockchain transaction, facilitated through a smart contract. These private keys are distributed among multiple participants and are necessary for executing a transaction. In a multi-party computation (MPC) wallet, a single private key is split into shares, distributed among different parties, and used to finalize transactions. There are also differences in the creation process and technicality involved.
Pros and Cons of Multi-Party Computation (MPC) Wallets
Just like with different types of cryptocurrency wallets, such as hot and cold wallets, Multi-Party Computation (MPC) Wallets have inherent advantages and disadvantages.
Pros of Multi-Party Computation Wallets
Improved Security
The most obvious benefit of using MPC wallets is enhanced security. You are provided with extra security and privacy as the key or access to the wallet is split among different parties. This ensures safety and prevents theft, and unauthorized access to wallets.
Decentralization of Trust
In contrast to custodial wallets where a user’s private key is controlled by third parties like centralized exchanges, multi-party computation wallets distribute private keys among different parties, eliminating centralization of this key. This fosters mutual trust among involved parties.
Reduced Key Management Risk
There is a lower risk of hacks since the private keys are not assembled in one place. Responsible key management makes it more secure.
Flexibility in Access Control
One unique benefit of multi-party computation wallets is the flexibility in access control. It can be designed to allow for different levels of authorization. For smaller transactions, a certain number of parties must be involved, while for larger transactions, a higher number of parties must be involved. Additional features can be implemented, such as specifying the number of parties needed to be present for transactions and more.
Cons of Multi-Party Computation Wallets
Slower Performance Rate
One trade-off when using a Multi-Party Computation (MPC) wallet is the slower execution of transactions. Due to the involvement of multiple parties in executing a single transaction, it will take a longer period to complete transactions, resulting in a performance delay. This delay is attributed to the high computation power required in the creation of an MPC wallet’s private keys—shares.
High Cost
The cost associated with a Multi-Party Computation (MPC) wallet is high. This is because MPC wallets involve a significant amount of data sharing between two or more parties, as well as the blockchain network, leading to higher costs in the process.
Compromise
In a situation where a group of parties collides to approve transactions without the full consensus of every involved party, as long as they meet the minimum number of ‘shares’ needed for a transaction to be executed.
Internal Disputes
If conflicts arise between parties with access to the Multi-Party Computation wallet, there’s a high chance that the transaction and decision process will be stalled until internal differences are settled, which can have several implications.
Multiple Parties Involvement
One significant challenge with Multi-Party Computation wallets is the dependency on multiple parties for authorization, leading to delays if parties are unavailable or uncooperative.
Difficulty in Usage
The involvement of multiple parties makes the MPC wallet a bit complex to use, especially for those accustomed to having complete control over their wallet type. Coordinating multiple parties at once can result in a challenging user experience.
Potential Vulnerability
There is a risk of potential errors with MPC wallets, largely due to the technical complexity and loopholes left in the cryptographic code during the creation of the wallet. This poses a risk of losing funds stored in the wallets.
Examples of Multi-Party Computation (MPC) Wallets
ZenGo
ZenGo is a self-custodial wallet that relies on Multi-Party Computation (MPC). Instead of using private keys common among traditional wallets, ZenGo splits the responsibility of signing transactions between the user’s device and ZenGo’s servers, enhancing security. This approach makes key management easier for many users. ZenGo also implements other safety and security measures like 3FA recovery.
Fireblocks
Fireblocks is an MPC wallet focused on business and enterprise, enabling convenient management of digital assets. Fireblocks services are primarily designed for institutional players in the cryptocurrency space, including Revolut, Etoro, Nab, Flipkart, etc. The Fireblocks API can also be used in the development of various Web3 applications.
Qredo
Qredo actively contributes to providing a safe way to interact with the cryptocurrency space. Beyond using distributed multi-party computation for the decentralization of private keys, Qredo offers a network, a layer 2 blockchain ensuring proper recording, transparency, and interoperability with other blockchains, including Bitcoin, Ethereum, Cardano, Algorand, Solana, Binance Smart Chain, and Polkadot.
Unbound Security
Now part of Coinbase, Unbound’s Crypto Asset Security Platform (CASP) utilizes MPC to provide a secure, scalable, and flexible solution for cryptocurrency transactions and storage suitable for enterprise applications. Coinbase’s acquisition of Unbound Security reflects the growing interest in MPC and its impact on the cryptocurrency space.
Curv
Similar to Unbound Security, Curv was acquired by PayPal, eliminating the need for private keys in traditional wallets. Curv is a highly secure, cloud-based MPC wallet service primarily aimed at institutional clients, making wallets more secure and transactions easier to execute.
OKX
OKX is another centralized cryptocurrency exchange that embraces MPC technology, eliminating the risk of losing private keys and access to crypto assets. So far, it has made user interactions easier compared to traditional cryptocurrency wallets.
How To Use A Multi-Party Computation (MPC) Wallet
Before using an MPC wallet, you must have decided which one you’d be using or considering. This decision largely depends on factors such as the level of security of the platform, the platform’s history, performance, available features, supported blockchains, supported tokens, etc.
To get started, download the MPC wallet app on your mobile devices, follow the sign-up steps, which are straightforward, and begin usage. Most wallets will allow you to interact with decentralized applications (dApps) and perform simple functions such as sending, receiving, or swapping tokens.
Conclusion
Multi-party computation (MPC) wallets are a brilliant approach to providing a better user experience when interacting with cryptocurrency while maintaining security. With this integrated wallet, alongside other innovations such as account abstraction, you can rest assured that the user experience will be greatly improved.
This way, there’s an extra level of confidence that comes with the usage of the platform. If more security approaches like these are considered in other aspects of the crypto world, adoption will grow, and user confidence will be assured.
Frequently Asked Questions (FAQs)
How does Multi-Party Computation (MPC) Work?
An MPC wallet is a type of cryptocurrency wallet designed using cryptographic methods to distribute private keys among different parties. This enhances security by avoiding a single-point failure.
How does Multi-Party Computation (MPC) Work?
MPC relies on a security method introduced in the 80s, allowing different parties to compute together without exposing their details. Private keys in an MPC wallet are distributed as “shares” among multiple parties, requiring collaboration for transaction confirmation.
How are MPC Wallets Different from Multisig Wallets?
Unlike multisig wallets that require multiple signatures for transactions, MPC wallets involve splitting a single private key into shares distributed among different parties. The creation process and technicalities also differ.
What are the Pros of Multi-Party Computation (MPC) Wallets?
MPC wallets offer improved security and privacy, decentralization of trust, reduced key management risk, flexibility in access control, and privacy preservation. They also provide the convenience of online storage without physical devices.
Examples of MPC Wallets in Cryptocurrency
ZenGo, Fireblocks, Qredo, Unbound Security, Curv, and OKX are examples of MPC wallets, each offering unique features for secure transactions.
Can you provide examples of Multi-Party Computation (MPC) Wallets?
Examples include ZenGo, which splits transaction responsibility between user devices and servers; Fireblocks, focusing on business and enterprise; Qredo, contributing to a safe interaction with the crypto space; Unbound Security (now part of Coinbase); Curv (acquired by PayPal), a cloud-based MPC wallet; and OKX, a centralized exchange embracing MPC technology.
