What is a multi-party computation (MPC) wallet?
Multi-party computation (MPC) is a cryptographic technique that allows multiple parties to jointly compute a function without revealing their individual inputs. This technology has numerous practical applications, including the secure storage and transfer of digital assets in MPC wallets.
In this article, we will explore the concept of an MPC wallet, how it works, its benefits and downsides.
What is multi-party computation?
Multi-party computation (MPC) or secure MPC (SMPC) is an essential cryptographic security measure that enables multiple parties to assess a computation without revealing any private information or related secret data held by each party. As a result of technological advancements and the proliferation of the internet - data security and privacy protection have proven challenging, especially when data is spread across large distributed networks. MPC is a critical technique that provides a trustworthy solution to the problem of data security and privacy, especially in the context of blockchain applications.
To better understand MPC, let’s explore a simple example.
Consider a scenario where three blockchain developers are employed at a Web3 startup and want to determine their average salary without revealing their individual salaries to one another or to a trusted third-party during the calculation process.
In this scenario, the employees would use a multi-party computation (MPC) protocol to calculate their average salary without disclosing sensitive or private information. The MPC protocol would employ a well-known cryptographic technique called additive secret sharing, which involves dividing and distributing a secret among a group of independent parties. As a result, an external party could determine the average salary without interacting with the employees directly.
The MPC protocol is dependent on two important variables: privacy and accuracy.
Each party’s private information cannot be worked out once the protocol has been executed. If, by chance, a few parties within the broader group decide to share information or deviate from the protocol’s general instructions during the execution phase, MPC will not permit them to force the honest parties to output an incorrect result or leak an honest party’s secret information.
History of Multi-party Computation
Research on MPC began in the early 1970s, with the development of practical applications starting in the 1980s, representing a relatively recent advancement in the field of cryptography. Before this, cryptography was mainly focused on concealing information. However, the new type of computation used in MPC aims to conceal only partial information while performing calculations using data from multiple sources.
Today, MPC is used for a range of practical applications, such as digital auctions and securing digital assets in MPC wallets. MPC has become the de facto standard for institutions and developers looking to secure their digital assets while maintaining quick and easy access to them. However, the ability to securely store and transfer digital assets is only guaranteed as long as the private key remains secure.
MPC Wallet vs other Wallets
Popular private key storage methods used across Ethereum and Solana wallets include cold storage, hot storage, and hardware wallets.
- Cold storage - the private key is stored in an offline environment
- Hot storage - the private key is stored in an online storage environment
- Hardware wallet - the private key is stored on a physical apparatus or device
However, cold storage, hot storage, and hardware wallets all have their risks. Cold storage, while secure, is still vulnerable to loss due to human error. Hot storage, on the other hand, is vulnerable to theft. Hardware wallets can be difficult to manage at scale.
Ultimately, MPC wallet technology has risen to prominence due to the operational and security challenges associated with each solution mentioned above. MPC is a good solution for both digital asset storage and transfers.
What is an MPC wallet?
An MPC wallet is a cryptocurrency and digital asset wallet that uses multi-party computation to offer strong security guarantees to individuals, firms, financial institutions, and governments that manage digital assets.
MPC wallets are not the first generation of institutional-grade wallets that enable multiple parties to control. Multi-signature (Multisig) wallets are another contemporary wallet implementation. Before we delve deeper into the pros and cons of adopting an MPC-based wallet, let’s first explore what distinguishes MPC wallets from Multisig wallets.
What is the difference between MPC wallets and Multisig wallets?
A multisig wallet uses a unique digital signature that requires more than one private key to authenticate an outgoing transaction. In contrast, an MPC wallet divides a single private key among multiple parties.
Non-custodial crypto wallets, which allow the user to control their private keys, usually have a single private key that grants access to the funds in the wallet. This means that only one private key is required to sign and verify an outgoing transaction without the need for additional authorization. In contrast, Multisig wallets involve multiple parties, each with their own private key, and a transaction can only be completed if a majority of the parties sign it.
Multisig technology is closely associated with the advent of Bitcoin. It was first introduced to the Bitcoin network around 2012, leading to the widespread availability of multisig wallets. Like MPC-based wallets, multisig wallets are also designed to enhance security.
Downsides of Multisig Wallets
In today’s fast-moving digital asset ecosystem, multisig wallets are losing adoption for multiple reasons, including but not limited to a lack of protocol agnosticism and operational inflexibility.
1. No Protocol Agnosticism
It is difficult for multisig wallet providers to securely support new chains as the few cryptocurrency protocols that support multisig have distinct implementations from one another.
2. Operational Inflexibility
As an organization that manages digital assets expands, adjusting the process of accessing and transferring digital assets using a multisig protocol can be cumbersome.
As a result of these shortcomings and comparatively more efficient designs that MPC wallets provide in the context of today’s challenges, numerous wallet providers have already begun transitioning to MPC technology.
What are the benefits of MPC wallets?
Using MPC technology for wallets offers several advantages, including eliminating the need to trust third parties, enhanced data privacy, increased accuracy, the removal of single points of failure, increased difficulty for hackers, and reduced reliance on cold storage.
- Eliminate the need to trust third parties - data can be shared in a distributed manner without any third parties
- Increased data privacy - data is encrypted at rest and in transit so no private information is revealed or compromised
- Increased accuracy - MPC provides highly accurate results for different computations using cryptography
- Removal of single points of failure (SPOF) - private keys are not stored in one single place
- Increased hacking difficulty - a hacker would need to attack multiple parties across systems and locations
- Reduced reliance on cold storage - users can only hold their assets online and no longer need cold-storage devices
What are the downsides of MPC wallets?
There are a few limitations that developers and the broader community should be aware of when using MPC wallets, including computational overhead and high communication costs.
- Computational Overhead - To provide the security we need to generate random numbers for private key creation, the random number generation requires more computational overhead, which slows down the runtime
- High Communication Costs - Data distribution to multiple parties for computational purposes over networks can lead to an uptick in communication costs in comparison to simple plaintext computation
MPC Wallet Use Cases
The MPC technology has become the go-to standard for institutional-grade custodial solutions due to the numerous benefits of using MPC wallets. Major financial institutions, such as Revolut, have already announced their transition to MPC, which effectively eliminates the existence of whole or complete cryptographic keys to protect against both internal and external adversaries.
Moreover, the recent increase in consumer-oriented product innovations means that MPC wallet users can access the broader Web3 ecosystem. For instance, buying and selling non-fungible tokens (NFTs) via popular NFT marketplaces has become more convenient and secure.
Which web3 wallets use MPC?
Given the advantages of using MPC technology, numerous organizations offer web3 wallets that depend on MPC technology including, Zengo, Fireblocks, and Coinbase.
Launched in 2019 as the first consumer-facing MPC wallet, Zengo now boasts 700,000+ global customers, multichain support, and 24/7 live in-app customer service. In early 2022, Zengo announced support for web3-native applications by bringing MPC security to everyday users, leveraging advanced web3 firewall technology to increase safe transaction approvals.
Until recently, Web3 was only accessible via traditional, non-custodial wallets, which were complicated, confusing, difficult to recover, and challenging to secure with their private key vulnerability. By integrating with the open-source WalletConnect protocol and, therefore, the Ethereum network, Zengo’s wallet has opened the door to multiple decentralized applications in Web3.
The public crypto exchange’s MPC wallet enables a large and growing number of users to access the Web3 ecosystem in a safe, reliable, and secure manner. The MPC system developed in-house at Coinbase supports both ECDSA and EdDSA protocols. This means the wallet can handle cryptographic signing for almost any blockchain, and users don’t have to pay for gas transactions since there is zero overhead.
Users can access other product categories outside the usual buying, selling, and holding of cryptocurrencies through the dApp wallet. The revamped wallet is also gearing up to support all blockchains compatible with the Ethereum Virtual Machine (EVM) and select others, such as Solana.
Fireblocks is an institutional digital asset custodian that offers an MPC wallet with support for over 30 blockchain protocols and 1,100 tokens. With the combination of MPC technology with hardware isolation, Fireblocks’ institutional MPC wallet maximizes security and service level agreements (SLAs) while minimizing transaction costs.
Liminal Custody is a leading digital asset wallet and custody infrastructure company. Liminal's MPC wallet is a highly secure and efficient way to store and manage digital assets. It uses advanced cryptography to distribute the private keys across multiple servers to avoid a single point of failure.
Liminal also offers a number of unique features:
- Businesses can tailor the security settings of their MPC wallet to their specific needs with multi-dimensional self-custody parameters
- Liminal's MPC wallet uses advanced algorithms to optimize transaction confirmation times and save users money on gas fees
- Liminal provides each of its customers with a dedicated onboarding team to help them get started quickly and easily.
Which MPC wallet is best?
There is no one-size-fits-all MPC wallet that is suitable for every user. For individuals or small teams seeking the added security and usability of an MPC wallet, Zengo is an excellent option. For institutional investors, many more options are available, such as Fireblocks.
To choose the best MPC wallet, review these areas:
- dApp connectivity
- User experience
- Wallet security
- Native features
- User interface design
- Customer support
An MPC wallet is the foundational piece of infrastructure for institutional custodians, investors, and traders, and choosing the right wallet will be based on your needs.