#Crypto 360
#Security & Data Privacy
Considered the most secure crypto wallet security system, an MPC wallet has gained popularity among users in recent years. In this blog, we try to understand the phenomenon.
Key Takeaways
An innovation in the crypto security ecosystem, multi-party computation (MPC) wallets secure user funds by storing and managing them by using the eponymous MPC technology.
MPC is a cryptographic protocol that allows multiple parties to access data and execute computations without disclosing any of these details among each other.
The importance of secure and convenient storage of funds in the crypto economy cannot be underestimated. Though security systems have grown more advanced over the years, the threat of vulnerable networks falling prey to incessant exploits remains ever. It is in the context of decentralised finance (DeFi) security that multi-party computation (MPC) wallets have emerged as viable options for users in the Web3 economy.
Private and secure, MPC wallets are now being offered by most of the leading trading exchanges to their users. What makes MPC wallets popular are their efficiency and impregnability.
As per a report, users in the crypto market lost nearly $2 billion to scams, rug pulls and hacks in 2023. The figure was nearly double in 2022. The amount dropped last year due to improved security protocols on blockchain networks. The role of MPC wallets in enhancing the security of DeFi networks is worth a close scrutiny. Today, we will dig deeper into the innovative infrastructure of MPC wallets, their pros and cons, and if they are indispensable to a secure DeFi economy.
Multi-party computation (MPC) is a cryptographic technology protocol that allows multiple parties to access data and execute computations without disclosing any of these details among each other. What is unique about the cryptographic feature of the MPC is that it seeks to reveal rather than concealing information. The main kinds of MPC are listed below:
• Gennaro and Goldfeder MPC Algorithm: A leading MPC protocol, it requires that users should wait for up to 9 signature rounds so that transactions can get validated. It is used by many global institutions.
• Lindell et al. MPC Algorithm: Similar to the above algorithm, Lindell et al. MPC algorithm requires users to wait for up to 8 signature rounds so that transactions can get validated.
• Doerner et al. MPC Algorithm: An improvement upon the previous algorithms, it requires only 6 signature rounds for transactions to get validated.
• MPC-CMP Algorithm: The latest and the fastest, the MPC-CMP algorithm requires only 1 signature round for transactions to get validated. It offers the fastest transaction signing speeds of any MPC algorithm by 800%.
MPC is a subfield of cryptography that began in 1970s. By 1980s, we begin to see its trial and deployment in various experiments and projects. Let’s have a close look at the history of MPC over the last few decades:
• 1982: Leading computer scientist and computational theorist Andrew Yao introduced a secure two-party computation problem also known as the Millionaire’s Problem. The problem discusses Alice and Bob, two millionaires who are interested in knowing who of them is richer without revealing their actual wealth.
• 1986: Yao presented the first general protocol for secure two-party computation.
• 1987: Oded Goldreich, Silvio Micali, and Avi Wigderson released the Goldreich-Micali-Wigderson (GMW) protocol which adapted two-party computation to a multi-party format.
• 1990s: Studies in MPC by cryptographers such as Ran Canetti led to major breakthroughs in areas including universal composability.
• 2008: The first large-scale and practical application of secure MPC took place at an event in Denmark in January 2008. This event is known as the Danish Sugar Beet Auction.
• Late 2010s: Digital asset custodians and wallets for digital asset security deploy MPC for the first time.
• 2019: A new MPC-CMP algorithm that makes digital asset transactions to be signed up 800% faster than ever before debuted.
The MPC technology is advanced and can be deployed for several purposes.
The most popular use cases of MPC are:
• Electronic voting
• Virtual orders
• Data mining
Last but not the least, MPC is also used for securing crypto assets. Note that it was only recently that the concept of MPC was implemented in the DeFi wallet services.
• MPC creates a protocol that lets different individuals access and process data with privacy intact.
• Through MPC, the joint owners of a private dataset can compute the public function of their collective data without any exposure to individual, personal data among the participants.
• Data such as cryptographic keys and personally identifiable information (PII) remains private over MPC protocols.
Existing in the crypto ecosystem, MPC wallets secure users’ funds by storing and managing them by using a unique MPC technology.
• A single private key of an MPC wallet is divided into multiple parts known as "shares" using secret codes so that crypto assets held by users can be handled safely.
• These “shares” of this single private key are distributed among multiple parties who possess an MPC wallet.
• A transaction is authorised to be executed once a required threshold of shares in achieved. Neither all nor none of the shares are required to validate a transaction.
• Since no single party possesses the wallet, it makes it secure and impenetrable.
• It leads to the near impossibility of a single point of failure, making an MPC wallet quite secure.
To give you an example, suppose you write a promotion exam at your workplace along with two of your friends. While you guys are close buddies, secrecy rules when it comes to marks. When the results are announced, you guys get your marks on the internet. While none of you tell each other your marks, the examination body publishes the average score for everyone to see.
This way, you can know how much you scored in comparison to the average score and decide whether you did better than your friends or not. With intact secrecy at individual level, the average score tells everyone the general performance of the employees.
Want to Secure Your Crypto Wallet? Here Is How.
MPC wallets are a relatively modern innovation in the DeFi ecosystem, compared to regular wallets.
Let's compare the importance of MPC wallets in the context of the continuing evolution of Web3 wallets as the role of secure network infrastructure gets more crucial now.
• Single-key wallets, as is obvious, have one private key that can be easily forgotten or hacked.
• Multi-signature (multisig) wallets require multiple signatures from different devices or parties which is a complex and longer process.
• Hardware wallets exist physically which makes them vulnerable to damage.
• In contrast, MPC wallets have no single point of failure. They make the access to the funds or data faster, private, secure, and economical.
It is important for us to understand that a user must choose a wallet as per their requirements. No wallet is superior to others, and oftentimes, a wallet’s utility is best understood in terms of its use cases. We recommend that users should first discern what their priorities are and then decide which wallet is best for them.
MPC wallets are a technological innovation in progress and still have a long way to go before they are open for widespread adoption in the industry. They have wide-ranging benefits to offer that have led to their increasing adoption over the past few years. Nonetheless, there are some drawbacks associated with these wallets. We recommend that you take a close look at both the benefits and drawbacks of MPC wallets and then decide for yourself if you require them.
There are different options for securing digital assets such as:
• Hot Storage
• Cold Storage and
• Hardware Wallet
These are some excellent security options for a lot of users but those of you exploring a more advanced and secure option should opt for MPC wallets. The MPC protocol plays an important role not only in the storage of cryptocurrencies but also in facilitating the transfer of those digital assets. The advanced security and seamless speed of the protocol make it an ideal protocol for the security of crypto tokens.
In fact, several leading financial institutions have transitioned to using MPC for security purposes. Among these institutions are the largest global custodial bank, BNY Mellon and London-based financial solutions provider Revolut.
In the burgeoning crypto economy, MPC wallets are expected to play a crucial role in the future. These wallets provide safe security solutions to Web3 users while fostering trustless, privacy-oriented financial systems. We already drew a complete picture of the MPC technology and its deployment in crypto wallets over the last few years.
The latest series of developments in MPC technology are geared towards increasing efficiency, security and speed of crypto wallets. This has led to increased adoption of these wallets among a large number of eager users. It is not that MPC wallets do not have any drawbacks, but the security, ease and privacy offered by these wallets are drawing many users. This is why MPC wallets are expected to become more popular over time.
Most retail users don’t use MPC wallets except some high-net-worth individuals (HNIs). MPC wallets are usually used by large institutions or groups to store and access their funds securely. Please note that no wallet is perfect or ideal, as each has its pros and cons. However, as far as MPC wallets are concerned, the benefits outweigh the drawbacks.
Financial institutions are increasingly adopting MPC wallets due to the enhanced security infrastructure and multi-party support they offer. Knowing the use cases of a wallet in terms of functionality, security, and cost before using one is most crucial.
We recommend you to compare different MPC wallets and then choose one based on your requirements. Keep following the BitDelta Academy to learn the latest trends in crypto security and trading. Register on the BitDelta app today and begin your journey to financial security.
MPC wallets are a category of crypto wallets that secure users' funds by storing and managing them using the eponymous MPC technology.
A. An MPC wallet allows multiple parties to access data and execute computations without disclosing any of these details among each other, with privacy intact. Through MPC, the joint owners of a private dataset can compute the public function of their collective data without any exposure to individual, personal data among the participants.
Both Multisig and MPC wallets are advanced crypto wallets. The main difference between the two is that while the former uses multiple private keys to sign transactions, the latter splits its single private key into fragments.
An MPC wallet has only one private key that is further split into multiple “shares” to be distributed among the different holders of the wallet.
This article is for informational purposes only and not intended as investment or financial advice. It contains opinions and speculations that are subject to change without notice.
The author and publisher disclaim any liability for decisions made based on the content of this article. Readers are advised to conduct their own research and consult a financial advisor before making investment decisions.
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