TL;DR
Multi-party computation (MPC) wallets offer a unique way to store crypto safely. They divide secret keys between many parties using secret codes, keeping them safe from everyone else.
MPC ensures data privacy and accuracy through cryptographic methods, preventing breaches even if some parties deviate from the protocol.
MPC wallets are gaining popularity in the cryptocurrency space due to their enhanced security compared to other storage methods like cold storage, hot storage, and hardware wallets.
While offering increased security, MPC wallets might slow down processes and require more communication compared to simpler methods.
In short, Multi-party computation (MPC) is useful for keeping digital things safe, like digital assets in MPC wallets. This article talks about what an MPC wallet is, how it works, and what's good and not so good about it.
What Is Multi-Party Computation?
Multi-party computation (MPC) or secure MPC (SMPC) is a way for a bunch of people to work out something secret together. It keeps things private, especially on the internet, where it's hard to keep secrets. To understand MPC, here's a simple example.
Imagine three blockchain workers at a Web3 startup. They want to find out their average pay without telling each other how much they make. They use an MPC protocol to find the average without giving away any secrets. The MPC uses a trick called additive secret sharing to divide the secret between the workers. This lets someone find the average without talking to the workers directly.
MPC depends on two important things: keeping things private and getting the right answer. Even if some workers don't follow the rules, MPC stops them from making others tell lies or sharing secrets they are not supposed to share.
History of Multi-Party Computation
MPC is a subfield of cryptography that started in the 1970s, with real uses starting in the 1980s. But unlike traditional cryptographic techniques, which are often used to protect information from outsiders, MPC uses cryptography to ensure data privacy between participants of the same system.
As such, MPC technology is now applied to a range of use cases, such as securing digital assets in MPC wallets or keeping certain information private during digital auctions.
What Is an MPC Wallet?
As the name suggests, an MPC wallet uses multi-party computation technology to offer enhanced security for your cryptocurrencies and other digital assets. It basically splits a wallet’s private key among multiple parties to increase privacy and reduce the risks of hacking, breaches, and losses.
But isn’t that what multisig wallets do? Well, not really. Multisig and MPC wallets were both designed to increase privacy and enhance security, but their working mechanisms are different.
MPC Wallets vs. Multisig Wallets
A multisig wallet sends blockchain transactions through a unique signature that requires the authentication of two or more private keys (one private key from each party). MPC wallets, however, divide a single private key among the multiple parties. While they may sound similar, there are technical implications that make MPC wallets more flexible and easier to implement.
Benefits of MPC Wallets vs. Other Crypto Wallets
Among the different types of crypto wallets, custodial wallets are the ones that hold and manage your assets and private keys. In contrast, non-custodial wallets are the ones that allow users to hold and control their private keys.
The non-custodial wallets are often seen as safer storage options as users don’t need to trust a service provider or a third party with their keys. However, being in full control over your wallets and keys also has disadvantages (especially for beginners). These wallets usually require some degree of technical knowledge, and users need to make sure their keys don’t get lost or stolen.
MPC wallets can provide the best of both worlds. They are getting more popular because they can offer enhanced security with more convenience, eliminating or reducing the problems faced by other wallets.
In short, the benefits of MPC wallets are:
Increased privacy: data is encrypted in all parts of the process, and there is no need to trust third parties.
Increased security: removes single points of failure. The secret key is spread among multiple parties and locations.
More convenience: you can hold your assets online. No more need for cold storage.
What Are the Downsides of MPC Wallets?
Slower: Increased security often leads to slower performance as it requires extra computational work, especially when generating private keys and their secret shares.
Higher costs: Sharing and computing data between multiple parties (and sometimes multiple networks) can increase costs significantly.
MPC Wallet Use Cases
MPC technology has become the top choice for strong security solutions in big institutions because of the many benefits it offers. Well-known financial companies have started using MPC to keep their assets safe from both inside and outside threats.
Closing Thoughts
In conclusion, Multi-Party Computation (MPC) wallets have emerged as a sophisticated solution for ensuring the security and privacy of digital assets. While they come with certain limitations, their advantages in terms of enhanced security, privacy, and reduced reliance on traditional storage methods make them an increasingly popular choice. As the digital asset landscape continues to evolve, MPC wallets are expected to play a pivotal role in securing assets and information in the digital realm.
Further Reading
Disclaimer: This content is presented to you on an “as is” basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer here for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.