Over the years, crypto has continued to evolve and this has come with a growing need for enhanced security. There has been many solutions to this challenge, one of them being Multi-party Computation Wallets (MPC). It’s a type of wallet which offers improved security by sharing wallet keys with multiple parties.
For beginners, MPCs might not be so easy to navigate, but in this guide, we’ll explain what a multi-party computation wallet is, how it works, and its significance in the crypto space.
What is a Multi-party Computation Wallet?
A Multi-party Computation (or MPC) wallet is a type of crypto wallet which uses multi-party computation technology to improve security by sharing the responsibility of private key generation and management among multiple users.
Simply put, instead of a single user holding a private key that can be stolen or lost, a multiparty computation wallet shares private keys with many users, so no single person has access to the private key. This helps prevent hacking, data breaches and loss of assets.
MPC wallets rely on cryptographic protocols that allow multiple parties to jointly compute a function without revealing their private inputs. This ensures that even if one key holder is compromised, the attacker can’t get access to the full private key, thereby protecting your assets.
How do MPC Wallets Work?
To get a clear understanding of how multiparty computation wallets work, you have to know what private keys are. A private key is like a ticket you use to get access to your funds when you use a crypto wallet. Whoever has access to these private keys can send or receive funds on the wallet. In traditional wallets, private keys are usually encrypted and stored in a single location, but this makes it more prone to hacks compared to MPCs.
So, instead of creating a private key for just one user, MPCs share parts of a key with multiple users. These keys are useless on their own, but when combined with the other parts, it can be used to authorize transactions. When a user wants to make a transaction, all parties who hold the key work together to authorize the transaction. It is important to note that this happens without any party sharing their part of the key with another party.
MPC wallets also make use of something called threshold security. This means that you don’t need the complete set of the keys to authorize a transaction. For instance, if the key is split into six parts, you may only need four to complete the transaction. This comes in handy in case a party is unavailable.
Benefits of MPC Wallets
- The major advantage MPC wallets have over traditional wallets is that they are almost immune to attacks. In traditional wallets, a hacker can easily get access to your funds if they get a hold of your private key, but for MPC wallets, there’s no single key to steal. Even if one of the parties involved gets compromised, the hacker still has to get other parts of the key. This makes attacks less likely and ineffective if they occur.
- MPC wallets are flexible to a considerable extent. Thanks to the threshold cryptography, you can still access your funds even if one part of the key is lost or unavailable. This allows better risk management and control.
- MPC wallets also protect user’s data privacy as the parties involved are not required to share data with each other. This ensures that third parties can’t access a user’s information without their knowledge.
- MPC wallets also remove the risk of a single point of failure because unlike traditional wallets where you can be subject to attacks and loss of private keys, MPC wallets are protected because the keys are distributed with multiple parties who are involved in the system.
Disadvantages Of MPC Wallets
MPC wallets come with many advantages, but they also have their downsides. One of this is that MPC wallets rely on cryptographic protocols and distributed computing that could be hard to understand and carry out, especially for beginners. This can lead to some errors in the protocol that could have an effect on the wallet’s security.
MPC wallets also require a lot of communication with other parties involved in the system because a single user cannot authorize transactions on their own. This may lead to unexpected delays sometimes.
Who Needs MPC Wallets?
The use of MPC wallets is not restricted to certain types of users, but with its design, it’s obvious that it is more beneficial for people who run joint business ventures. For a startup or collaborative business dealing with cryptocurrency, MPC wallets are a safe way to distribute control of assets among all parties involved. It ensures that one person can’t move funds without the consent of others, thereby creating a transparent and secure way to manage shared funds.
MPC wallets can also be useful for institutional investors who have to manage large sums of cryptocurrency. It allows companies to share control among multiple stakeholders. For instance, a company may need three executives to approve a transaction, MPC wallets make this easy to implement while offering maximum security.
Conclusion
When it comes to security in the cryptocurrency space, multiparty computation is a significant step towards total security and putting an end to security breaches. Through the distribution of keys among multiple users, it eliminates the risks that come with single point private keys.
MPC wallets may appear complex, especially for newbies, but the benefits make it worthwhile. It offers a flexible solution for both individuals and companies looking to manage large sums without having to worry about security.
