What is Multi-Party Computation (MPC) Wallet?

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• Multi-Party Computation Wallets are a way to store cryptocurrency safely.
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• MPC wallets improve security by splitting private keys into multiple pieces that are then distributed across parties.
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• This technique eliminates the single point of failure associated with traditional wallets where a compromised private key gives third parties total control.
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• MPC Wallets require more coordination across parties in order to sign transactions.
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Cryptocurrency wallets are the gateway to web3 (the decentralized web) and all its infrastructure. In this article, we’ll talk about a specific type of crypto wallet called an MPC wallet, explain how it works, when to use it, and its pros and cons.
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Traditional crypto wallets offer excellent security, accessibility, and pseudonymity, amongst other great features. However, traditional wallets have a vulnerability: if hackers gain access to the private keys, they gain complete control.
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MPC wallets fix this. Instead of relying on one private key stored in one location, MPC wallets split private keys into multiple parts and distribute them across devices or parties. This means that hackers must gain access to all parties' keys in order to hack a wallet.

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What Is Multi-Party Computation?

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Multi-party computation (MPC) or secure MPC (SMPC) is a type of cryptography that allows multiple people to work together and agree on things without sharing the data itself. Imagine a scenario where you want to know if you’re making a fair salary at your current company.

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With MPC you could get the average salary of workers at your company without revealing any particular person's number. This is something called “additive secret sharing” that splits up data among multiple parties.

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An MPC (Multi-Party Computation) wallet uses this form of cryptography to allow you to split your private key into multiple key shards, such that no person has full access. This forms a secure combination to sign transactions.

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It allows you to jointly compute private keys without revealing individual inputs. During transactions, the MPC wallet generates the private key combination from the distinct key shards to sign transactions without reconstructing the entire private key. No participant has access to the full private key through the transaction lifecycle, making attacks substantially more difficult.

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MPC Wallets vs. Multisig Wallets

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While similar at first glance, MPC wallets and multisig wallets have slightly different technical implementations.

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Multi-sig wallets send transactions through a process that requires two or more unique keys. This is in some ways similar to MFA where you would provide verification codes from multiple sources for access. MPC wallets, on the other hand, split the private key itself among various parties.

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Benefits of MPC Wallets vs. other Crypto Wallets

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Like all wallet choices, MPC wallets have some pros and cons based on their features. Smart MPC wallets fragment private keys into parts (fragments, key shards, shards) and distribute them to the number of locations you specify (this could be manual, too).

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The more key shards, the more security you get. You can also specify the number of key shards that should be valid for transactions, e.g. 3 of 4 key shards. The tradeoff with this is a slower approval process since more shard owners means increased communication.

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Pros and Cons of using MPC Wallets

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MPC wallets eliminate the single point of failure issue associated with maintaining one private key. However, there are tradeoffs.

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Pros

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• Improved Asset Security: MPC wallets enhance the security of assets in your account through private key fragmentation into key shards that eliminate the single point of failure.
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• Reduced Risk of Attacks: If you don’t share the secure combination of the private key, you’re less prone to private-key-related attacks
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• Flexibility: MPC wallets have multiple use cases. For example, you can customize a security model, like defining a required number of key shards to authorize transactions.
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• Operational Effectiveness: MPC wallets are faster and more agile than cold wallets. They’re also great if you don’t want to deal with the complexity and communication factors of using multi-sig wallets.
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• Privacy: MPC wallets are more private than multi-sig wallets. The signing process of an MPC wallet is off-chain. Unlike multi-sigs, where the approving entities are visible, the on-chain signature appears identical to any other wallet.
  
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Cons

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• Slower Approvals: Unlike traditional wallets, using MPC wallets is complex since you’ll need multiple key shards to sign transactions.
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• Limited Availability: MPC wallets are not as adopted or available as traditional wallets, and most traditional wallet providers don’t have MPC offerings.
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• MPC Wallets are Not Bulletproof: MPC wallets only enhance security. If an attacker accesses your private key or you sign a scam transaction, you're still prone to hacks.
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• You’ll still need to take precautions to safeguard your MPC wallet and cryptocurrency assets.
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Keeping Your MPC Wallets Safe

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Implement these practices to keep your wallet safe from third-party access and scams.

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• Complexity Management: Consider the tradeoffs in creating multiple key shards. Make sure to choose a convenient but secure number of key shards for approving transactions.
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• Regular Audits: Review transactions for unusual activities. It will help you detect unusual activities early.
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• Secure Transmission Channels: Store your key shards in secure environments online or offline to reduce the possibility of losses due to physical threats or cyberattacks.
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• Update and Patch Regularly: Keep your MPC wallet applications up-to-date with the latest security patches and releases in cases where prior versions may be vulnerable.
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• Proactively combining one or more of these practices will help secure your MPC wallets and assets.

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Conclusion

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When it comes to the security and privacy of digital assets, Multi-party computation (MPC) wallets are an advanced solution with significant advantages in enhancing security and privacy.

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These advantages make MPC wallets a popular choice when it comes to safeguarding assets in the cryptocurrency space and are leading to increased adoption overall.

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You can find a balance using MPC wallets to store important assets while using traditional wallets to save time and secure assets for regular transactions.

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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 Backpack. Please read our full disclaimer 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 Backpack is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. 

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