Dive into the world of multi-party computation (MPC) wallets, understand how they work, their benefits, risks, top options, and how to choose the right one for secure crypto storage.
Multi-party computation (MPC) wallets are not exactly a topic that comes up often in crypto. Even though they are highly technical, it is still useful to understand how these wallets work and what their use cases are.
TL;DR:
- "Multi-Party Computation" (MPC) wallets are an innovation in crypto storage, using cryptographic protocols to split and distribute private keys among multiple parties securely without revealing them to others.
- Private keys are split into “shares” and distributed to each party that has control over the wallet, ensuring that no single party can control the wallet.
- Transactions can be authorized by multiple shares, not all, enhancing the security and availability of the wallet, while eliminating single points of failure.
- MPC wallets differ from single-key, multi-signature or hardware wallets, and have benefits as well as risks.
Join us in showcasing the cryptocurrency revolution, one newsletter at a time. Subscribe now to get daily news and market updates right to your inbox, along with our millions of other subscribers (that’s right, millions love us!) — what are you waiting for?
What Are Multi-Party Computation (MPC) Wallets?
Multi-party computation wallets are crypto wallets using MPC technology to manage and store users’ assets securely. MPC is a cryptographic protocol that allows multiple parties to perform computations on their data without revealing it to each other or a third party. For example, three parties can calculate their average salary without disclosing their individual salaries. While the concept of MPC has been around since the 80s, it has only entered the crypto space in recent years, allowing wallet providers and custodians to securely store crypto assets.
In an MPC wallet, the private keys which users require to access and manage their crypto assets are split into multiple parts known as "shares". These are subsequently distributed among the parties involved in the MPC protocol. As a result, no single party can control or compromise the wallet. Moreover, transactions can be authorized by attaining a required threshold of shares instead of requiring all or none of the shares. This eliminates a single point of failure and enhances the security and availability of the wallet.
How MPC Wallets Differ From Regular Wallets
MPC wallets differ from regular wallets such as single-key, multi-signature or hardware wallets. Single-key wallets rely on one private key that can be easily lost or stolen. Hence, MPC wallets are more secure in that regard.
Multi-signature wallets require multiple signatures from different devices or parties which can make the process cumbersome or affect the availability of the wallet in time-sensitive situations. Moreover, MPC wallets are protocol-agnostic and maintain the signers' privacy. They're also cheaper since only one transaction signature is necessary.
Finally, hardware wallets depend on physical devices that can be damaged. They are also not suited for use cases where more than one participant is required to authorize transactions.
Benefits of MPC Wallets
MPC wallets offer several benefits, such as:
Decentralization
MPC wallets do not require any trusted third party to store or access the private keys, as they are distributed among the multiple parties involved in the MPC protocol. This reduces the risk of centralization, corruption or collusion that may compromise the security or availability of the stored assets.
Data Privacy
MPC wallets protect the users' data privacy too, as they do not reveal any private information or secret data to each other or to a third party. This ensures that no one can access or tamper with the users’ data without their consent or knowledge.
High Accuracy
MPC wallets also provide high accuracy for different computations using cryptography. This means they can perform complex operations such as generating addresses, signing transactions and verifying signatures without errors or inconsistencies.
Removes Single Points of Failure
MPC wallets eliminate single points of failure that may exist in other types of wallets, such as single-key, multi-signature or hardware wallets. These types of wallets may suffer from loss or theft of private keys, unavailability of key parties, malfunction of devices, or hacking or phishing attacks. MPC wallets overcome these challenges by splitting and distributing the private keys among the multiple parties involved in the MPC protocol.
Scalability
MPC wallets enable scalability by allowing users to add or remove parties from the MPC protocol without affecting its functionality. Users can adjust their security and performance levels according to their needs and preferences. For example, users can increase their security by adding more parties to the protocol.
Flexibility
MPC wallets offer increased flexibility by enabling dynamic policies and workflows for managing digital assets. Users can set different thresholds for authorizing transactions depending on various factors such as amount, frequency, destination address and more. Users can modify these thresholds at any time without affecting existing transactions, and create contingency plans in case any of the required parties become unavailable.
Compliance
MPC wallets support compliance with global regulations and industry standards for digital asset custody. Users can comply with Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements by verifying identities and sources of funds before initiating transactions They can also adhere to audit and reporting obligations by providing transparent records and logs of transactions, as well as follow industry best practices for security and governance through their policies and procedures.
Risks of MPC Wallets
MPC Wallets also have some risks you should be aware of, such as:
High Communication Costs
MPC wallets require a lot of communication between the parties involved in the MPC protocol. This can increase the bandwidth usage and the network latency of the devices involved in the process. It can also expose them to network attacks such as denial-of-service (DoS) or man-in-the-middle (MITM) attacks.
Technical Complexity
MPC wallets rely on advanced cryptographic techniques and distributed computing that are hard to understand and implement correctly. This can lead to bugs, errors or vulnerabilities in the code or the protocol that can compromise the security or functionality of the wallet.
Not Open-Source or Interoperable
Most conventional wallets like Ledger and Trezor are incompatible with MPC wallets. MPC algorithms are not standardized and the solutions are not open-source, which makes them difficult to use for retail customers.
Popular MPC Wallets
Some of the popular MPC wallets include:
ZenGo
ZenGo is one of the most popular and user-friendly MPC wallets for individuals and small teams. It offers buying and selling crypto with fiat, biometric authentication, backup and recovery features, 24/7 live customer service, supports over 70 different cryptocurrencies, and allows users to use their favorite decentralized applications (DApps) through Wallet Connect.
Fireblocks
Fireblocks is one of the most trusted and secure MPC wallets for institutional investors. It supports over 40 blockchain protocols and 1,100 tokens and integrates with major exchanges and protocols. It also offers enterprise-grade security features such as insurance coverage up to $150 million per wallet, multi-factor authentication, role-based permissions and audit logs.
Coinbase
Coinbase, one of the largest and most well-known crypto centralized exchange (CEX) platforms, also offers an MPC wallet solution for institutional clients. It supports over 90 cryptocurrencies and provides access to the Coinbase Pro trading platform.
Qredo
Qredo is a new and innovative MPC wallet platform enabling institutional investors cross-chain liquidity. It supports over 20 blockchain protocols and allows users to transfer assets across different blockchains without intermediaries or fees. It also offers advanced security features such as decentralized governance and atomic settlement.
How To Choose an MPC Wallet
An MPC wallet will not be for most users. But in the event that you choose to get one, you should keep the following two tips in mind:
1. Know your use case
Different MPC wallets cater to different types of users, such as individuals, small teams or institutional users. Depending on your use case, you may have different requirements for security, performance, functionality and cost.
2. Compare features and services
Different MPC wallets offer different features and services that can enhance your crypto experience. For example, some MPC wallets offer buying and selling crypto with fiat, biometric authentication or more granular access controls. Compare the features and services of different MPC wallets and see which ones match your preferences and goals.
This article contains links to third-party websites or other content for information purposes only (“Third-Party Sites”). The Third-Party Sites are not under the control of CoinMarketCap, and CoinMarketCap is not responsible for the content of any Third-Party Site, including without limitation any link contained in a Third-Party Site, or any changes or updates to a Third-Party Site. CoinMarketCap is providing these links to you only as a convenience, and the inclusion of any link does not imply endorsement, approval or recommendation by CoinMarketCap of the site or any association with its operators.
This article is intended to be used and must be used for informational purposes only. It is important to do your own research and analysis before making any material decisions related to any of the products or services described. This article is not intended as, and shall not be construed as, financial advice.
The views and opinions expressed in this article are the author’s [company’s] own and do not necessarily reflect those of CoinMarketCap.
