What Are Multi-Party Computation (MPC) Wallets?

What Are Multi-Party Computation (MPC) Wallets?

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MPC technology is a well-established concept to manage, share and modify digital information securely. The MPC approach allowed several parties to execute computations within a single database while staying completely anonymous to each other. 

While the MPC model has existed for several decades, it found its footing after creating blockchain networks and crypto wallets. This article will explore the nature, benefits and some of the shortcomings related to the MPC approach in crypto wallets. 

Key Takeaways

  1. MPC wallets are perfect options for joint groups to control a single pool of crypto assets. 
  2. The MPC model distributes a single private key in separated units to respective wallet users, requiring a majority vote to verify transactions. 
  3. MPC models offer an unprecedented combination of enhanced security, efficiency, and speed. 
  4. Despite their excellent methodology, MPC wallets are currently unproven, susceptible to technical errors and offer limited features. 

MPC Wallets Defined

MPC wallets are the subset of digital crypto wallets based on the multi-party computation methodology. They allow multiple users to create a joint wallet to store digital assets without a single point of failure. In practice, this means that MPC wallets can be accessed, operated and modified by separate users without ever disclosing each other’s identity or putting the shared digital assets in jeopardy. 

MPC technology achieves this hefty promise by dividing the digital wallet’s private key into several units. These units, popularly referred to as “shares”, are given to respective wallet users. This novel system of private key distribution has several advantages over the traditional single-key approach. 

First, a single party cannot sabotage MPC wallets, as every action within the MPC wallets must be verified by a certain number of users. To further visualize this concept, let’s imagine an MPC wallet with ten keyholders and an access requirement of 7 holders. In this scenario, no single user can access, modify or corrupt the joint digital assets, as they will need confirmation from 6 other parties at any time.  

The threshold approach to accessing MPC wallets is essential, since it also ensures that no single party can get in the way of executing transactions demanded by the majority. Thus, MPC wallet systems closely resemble the democratic approach, where no single party can make decisions without the support of the majority. With this approach, MPC wallets ensure security and risk mitigation, as it would require a substantial effort from several parties to sabotage this system. 

MPC Wallets vs Regular Crypto Wallets

While MPC wallets share many similarities with established crypto wallet solutions, they are quite different in verifying transactions. As of 2023, there are three flagship types of crypto wallets – single-key wallets, multi-signature wallets and hardware wallets.  

Single-Key Wallets

As the name suggests, a single-key wallet requires a private key to access the entire wallet infrastructure. These crypto wallets do not possess the ability to divide keys into separate units. Thus, single-key solutions cannot ensure wallet security if the primary key gets corrupted, displaced or stolen. Thus, mpc wallets present an obvious upgrade over single-key solutions, protecting the underlying digital assets from worst-case scenarios related to single-key corruption.  

Multi-Signature Wallet (Multi-Sig)

On the other hand, a multi-sig wallet is an improvement of the single-key approach, as it relies on the same concept as the MPC technology. However, compared to the MPC model, multi-signature wallets require multiple private keys to verify a single transaction. This means that multi-sig wallets must generate several cryptographic keys for every transaction. 

Naturally, this process requires more computational power and the support of advanced blockchain protocols, as every blockchain network does not support generating multiple signatures for a single transaction. On the other hand, MPC wallets rely on a single private key, which is then divided into secure units. Thus, the MPC approach works with most blockchain protocols without problems and requires much less time to confirm transactions. 

Cold-Storage Wallets

Cold storage, or hardware wallets, are considered the most secure crypto wallets in existence by industry experts, as they can store digital assets offline. Thus, hardware wallets are entirely safe from cyber threats or malicious intent online. However, hardware wallets are physical devices that can be easily lost, stolen or sometimes damaged. 

In that case, reclaiming lost digital assets is nearly impossible. Moreover, hardware wallets are not the most convenient option for multiple parties managing a single crypto wallet. In the fast-paced business environment of 2023, governing parties require fast access and the ability to verify transactions swiftly, which is challenging to receive with a hardware wallet. Conversely, MPC wallets can accommodate enhanced security, multi-party access requirements and lightning-fast verification times. 

MPC wallets harness the unique methodology of splitting a single private key into encrypted units to ensure the speed, decentralization and efficiency of transactions. 

Fast Fact

Advantages and Features of MPC Wallets 

As outlined above, MPC wallets offer a unique crypto wallet ecosystem for parties interested in conveniently managing a single digital asset pool. This approach is excellent for organizations and joint ventures that desire to operate crypto assets without sabotaging the core concept of anonymity, speed, and security of blockchain technology: 

Complete Decentralization

It is no secret that the main attraction of blockchain-based solutions is their complete decentralization, letting users conduct operations without unnecessary third-party intermediaries and central authorities. MPC wallets fully accommodate the decentralization feature, enabling the managing parties to verify desired transactions without outside intrusion. 

This feature is highly demanded by businesses and organizations which seek to conduct transactions independently. It is widely known that centralized banks and other financial institutions heavily monitor every single money transfer, limiting the freedom of their customers and monitoring sensitive data without any exceptions. With MPC wallets and crypto wallets in general, users can conduct operations anonymously and without arbitrary limitations.

Additionally, centralized digital wallets do not accommodate data privacy, as the central authorities must inspect sensitive data to ensure security on their platform. With MPC wallets, there is no need to monitor private data to enhance the security of digital assets, which allows users to keep their personal information private at all times. With the MPC protocol, private data is not shared, even with the parties inside the specific MPC wallet. 

Efficiency and Speed

While the MPC approach is a complex methodology with numerous intricacies, operating at full capacity does not require substantial computing resources. Since the MPC model uses a single private key to verify all transactions, there is no need to utilize high-maintenance blockchain networks or significant resources in the verification process. 

Moreover, the single-key approach allows the MPC model to decrease transactional costs and technological requirements related to a single verification process. Unlike multi-sig wallets, MPCs have a built-in algorithm that divides a private key into secure cryptography units, letting users conduct transactions almost instantaneously. 

Enhanced Security and Compliance

As discussed above, the MPC methodology effectively eliminates the single points of failure. The entire MPC model is built around the idea that no single party can take over or sabotage the entire MPC wallet in any given scenario. Unlike conventional crypto wallets, the MPC approach requires a certain approval threshold to conduct any operations within the digital wallet. This system guarantees the wallet integrity even in the unfortunate event of phishing and other malicious attacks. 

Additionally, the MPC’s key distribution model has a unique advantage in the crypto wallet market. It is widely known that private keys must be updated frequently to eliminate the chances of cyberattacks. However, in the case of other wallets, the private key update itself requires time and transaction fees. Thus, ensuring security can become costly for involved parties. 

However, with the MPC model, updating the underlying private key itself is unnecessary, as the private key can be divided into unique data units for multiple uses. Thus, MPC wallets can utilize the same private key but change the combination of distributed shares. This way, even if the malicious attackers sabotage a single user, they will still have to guess the remainder of the private key distributed to several parties. 

Scalability Across the Board 

MPC wallets allow users to seamlessly add or subtract the managing parties from the wallet ecosystem. The involved parties can also change the required threshold for verifying transactions. These two options go a long way to ensure security within MPC wallets, as additional parties create a sturdier layer of protection. Additionally, changing the threshold enables users to adjust the entire MPC system to their preferences. 

Moreover, MPC wallets accommodate contingency plans in case any parties are unavailable or kicked out of the ecosystem. In this case, the remaining participants can swiftly adjust the required threshold and other protocols to continue transactions without any bottlenecks. 

Disadvantages of MPC Wallets 

As discussed above, MPC wallets are not just an excellent solution for storing and managing crypto assets, but one of the most secure ways to operate joint ventures. However, despite its numerous advantages, the MPC model is still flawed. Thus, parties interested in adopting the MPC wallet model must consider the following shortcomings: 

MPC Model is New and Unproven

Even though MPC technology was introduced in the 1980s, its first practical application was unveiled in the late 2010s. Thus, MPCs are a much younger technology than other established crypto wallets. While this is not necessarily bad, there are certain risks involved. 

Firstly, the MPC model is not yet proven in the global crypto market, as it has been around for a short period. Thus, the MPC methodology might have some practical shortcomings that are not yet evident. Secondly, since the MPC technology is only a couple of years old, there are limited MPC wallet options on the market. This means that users do not have the freedom to choose an MPC product that caters to their distinct needs. 

Finally, MPC models do not yet accommodate all types of digital assets and cryptocurrencies. While MPC wallets will certainly increase their crypto portfolios in the future, this process will require time and patience on behalf of MPC wallet users. Thus, users will have limited options for operating on the blockchain landscape for the foreseeable future. 

Elevated Complexity

As outlined above, the MPC model operates on a highly complex model of private key distribution. While this model does not require significant computation resources, it is still an intricate algorithm susceptible to technical errors, system breakdowns and other data disasters. Thus, users might experience numerous problems when utilizing the MPC wallet technology. 

Aside from the technical issues, the MPC model also requires active and rigorous communication between the involved parties. While this might not be a concern for local parties, communication needs can become challenging internationally.

Final Takeaways

MPC wallets are a welcome addition to the crypto wallet market, introducing a novel approach to multi-party asset management. MPC wallets cater to the needs of joint ventures, businesses and massive organizations, letting them control massive pools of digital assets without sacrificing airtight security and decentralization. 

However, the MPC technology is still relatively new, unproven and highly complex. While the MPC model will certainly evolve beyond these issues in the future, it is important to understand its current limitations. 


How do MPC wallets work?

MPC wallets operate on the multi-party computation methodology, letting users access the digital wallet by providing their respective private key shares. With this approach, MPC wallets ensure the digital wallet will be safe from cyber-attacks or single-party takeovers. 

How many private keys do MPC wallets require?

MPC wallets only require a single private key, dividing the private key into separate data units and distributing them to respective wallet users. Since MPC wallets can also re-use the private key for multiple transactions, they save time and money for digital wallet users.

What are the biggest advantages of MPCs?

MPCs minimize the risks of phishing, scamming or hacking activities, as they require the majority approval for every transaction. MPCs are also efficient due to utilizing single private keys and still maintaining the highest level of security. MPCs are also highly flexible, letting joint groups add or subtract parties without hassle. 

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