Know More About Multi-Party Computation (MPC) Digital Wallets That Enhance Security in the Blockchain World
In the past, numerous private key hacks in the world of blockchain have affected both users and security personnel. This also contributed to the security problem in cryptocurrency wallets, which later became a hot topic. Cold storage is a secure way to store private keys, but it may not be convenient to use. In contrast, the MultiSig digital wallet is not secure enough because it still has a vulnerability that could result in the loss of a significant sum of money.
However, there is a new option for maintaining security that is more balanced called "multi-party computation" technology, which increases the security of the private key and seed phrases when you use a digital wallet. You can learn more about "multi-party computation (MPC) wallets" in this article from SCB 10X.
What is a Multi-Party Computation (MPC) Wallet?
A digital wallet called MPC Wallet makes use of MPC technology, which requires more than two participants before a transaction can be completed. It is referred to as "multi-party computation" because the process of generating digital signatures and wallet keys was carried out by many parties who collaborated using a distributed computing protocol. It means the use of numerous computers to process data in order to increase security for users, businesses, financial institutions, and the government sector that monitors digital assets. The idea of "the private key" is no longer required.
How MPC wallets function
A single password private key and a seed phase are needed for the crypto wallet's general operation in order to verify transactions and transfer funds out of the wallet, as well as to recover the private key code if it is lost. Therefore, it is important to keep the private key secure. However, there are still other issues with using the single password private key, most of which are caused by user error or hacker attacks. Your saved money might not be accessible or stolen as a result.
As a result, there is an effort to create "MPC wallets" that share ownership of the private key to address the flaw in the traditional crypto wallet. Instead of owning an individual private key, each party will instead possess a "shard" or "key share." Each party must use the key share in order to include their signature in the transaction because this is the only way to create a complete digital signature for the wallet.
The people who worked on developing the key and the signatures for MPC usage are not required to reveal their data. Therefore, the hackers are unable to transfer funds from the MPC wallet because they can only access this type of wallet through a simultaneous attack from all parties.
The multi-signature (MultiSig) wallet is another popular option, in addition to the MPC wallet, which enables multiple parties to participate and monitor for institutional use.
What is the difference between MPC wallets and MultiSig wallets?
Because most MPC wallets depend more on software that is owned and supported by third parties in order to maintain and function, MultiSig wallets and MPC wallets are distinct from one another. The MultiSig wallet, however, runs on open-source software that prioritizes privacy.
There are some similarities between these two types of wallets, though, such as the requirement that more than two people sign, verify, and complete the transaction in order to ensure overall accountability and supervision. Additionally, both of them support cold hardware wallets.
Advantages of MPC Wallets
There are many benefits to using MPC technology for wallets, including the fact that users do not need to rely on third parties, that the data is more private and accurate, that failure from a single source of the issue is less likely, that the MPC wallet is more secure and difficult to hack, and that there is less reliance on cold storage or other devices not connected to the internet.
The benefit of using MPC in terms of security is that it lessens the possibility of the private key being stolen, as the traditional crypto wallet, which frequently uses a single-password private key for asset management, is not that secure. Hackers previously had many options for obtaining the private key, including malware and phishing, which resulted in attacks and intrusions into users' wallets.
Distributed processing is referred to when an MPC wallet is used to distribute the private key to other different destinations, including the user's servers and devices, as well as using digital signatures to approve wallet transactions. Since the new private key does not need to be entirely generated, hackers cannot steal it.
However, using MPC can sometimes be problematic due to the MPC protocols' complexity, especially for those without prior experience or expertise in cryptography. Therefore, using an MPC wallet may be challenging for regular people at first.
Interesting use case of MPC wallets
"Fireblocks" is a digital asset custodian for institutions that provides the MPC wallet service, supports 30 blockchain protocols, and has 1,100 tokens available. It combines MPC technology with hardware separation to create a high-security MPC wallet for the Fireblocks institution and maintain service level agreements (SLA), including the fair transaction cost.
The use of MPC wallets on open-source platforms for cryptocurrency exchanges can lead to an increase in new users, making the Web 3.0 ecosystem more accessible and trustworthy. For example, the MPC system created by "Coinbase" enables the wallet to manage the encrypted signing for almost every blockchain and does not charge for the transaction.
The decision to use MPC, however, depends on the user's preferences and unique circumstances, which could be very beneficial, particularly for those who value security and privacy. While some people might favor other simpler solutions.