As cryptocurrencies grow in adoption and value, efficiently securing funds has become a technical challenge. The need to protect these assets has driven the development of various technologies and storage methods.
In previous articles, we discussed private key management solutions such as singlesig and multisig wallets, which distribute the responsibility for transactions among multiple signatories. We also looked at multisig2 in Bitcoin, an extension that provides more flexibility and security by using Schnorr signatures instead of traditional ECDSA signatures.
This time, we explore one of the most advanced and promising technologies in the field of cryptographic security: Multiparty Computation (MPC).
What is Multiparty Computation (MPC) and how does it work?
Multiparty Computation (MPC) is a subfield of cryptography that emerged in the 1970s. Its goal is to allow multiple parties to perform computations together without sharing private information between them. In the context of cryptocurrency wallets, MPC divides the private key into encrypted fragments called “shares” that are needed to authorize transactions. No single participant can reconstruct the full key.
A key difference with multisig wallets is that while multisig generates multiple independent private keys, MPC fragments a single key. This improves security because the fragments can be distributed across multiple devices, making them harder to crack.
Process of a transaction in a MPC wallet
The process of a transaction in an MPC wallet consists of the following steps:
- Transaction initiation: The user initiates a transaction from his device.
- Random number generation: The wallet generates a random number encrypted with a fragment of the private key.
- Decrypting the number: The user decrypts the number using the private key fragment.
- Sign the transaction: The user uses the decrypted number to sign the transaction.
- Signature combination: The wallet combines the signatures of all participants to create a single valid signature.
- Distribution on the blockchain: Finally, the signed transaction is sent to the blockchain for confirmation.
This process ensures that multiple participants collaborate on the transaction without exposing their full private keys, eliminating single points of failure.
Technical elements of Multiparty Computation
MPC wallets use several advanced cryptographic techniques:
- Secure multi-party computation (MPC): an algorithm that allows multiple parties to perform computations together without revealing their private data. It is the basis for ensuring that no single party has access to the full key.
- Encryption and cryptographic security techniques: Depending on the design of the MPC wallet, advanced techniques such as Yao’s Garbled Circuits can be used to ensure that computations are private and secure.
These techniques ensure that an MPC wallet operates securely without compromising any parts of the key, which is critical for corporate environments where shared control of assets is required.
Advantages of MPC wallets
MPC Wallets offer several benefits for both advanced users and businesses:
- Increased security: The private key is never fully reconstructed, eliminating single points of vulnerability.
- No blockchain protocol dependency: Since MPC transactions occur off-chain, they are not dependent on the specific protocol of a particular blockchain.
- More efficient distribution: By eliminating the need to store every signature on the blockchain, transactions can be faster and more efficient.
- Reduced risk of attack: By not sharing or combining key fragments, the risk of theft or direct attacks on the key is dramatically reduced.
- Flexibility: The participants who can authorize transactions can be dynamically adjusted.
- Enhanced privacy: Participants’ signatures are not recorded on the blockchain, increasing privacy.
Disadvantages of MPC wallets
Despite their many advantages, MPC wallets also have some limitations and drawbacks:
- Technical complexity: Setting up and using an MPC wallet is significantly more complex than a single-signature or multisignature wallet, which may discourage its adoption by less technical users. Renowned cryptographer Adam Back raised a relevant concern about this aspect in January 2023:
“[MPC is] more complicated, more to get wrong. Advanced crypto protocols are fragile in the detail and in the implementation. I’d feel more confident in multisig, which is super simple and rock solid.” — Post by renowned cryptographer Adam Back, January 2023.
- Lack of standardization: Several MPC protocols exist, but there is still no widely accepted standard. This can lead to compatibility issues between different implementations.
- Expanded attack surface: Increased technical complexity also means an increased attack surface. Although MPC wallets are theoretically more secure, they require carefully audited and tested implementations to avoid vulnerabilities.
Threshold Signature Schemes (TSS) in MPC wallets
MPC wallets using Threshold Signature Schemes (TSS) allow both distributed key generation and key rotation. In the Distributed Key Generation (DKG) process, keys are generated collaboratively, without any party having full access to the private key.
An important advantage of TSS is the ability to rotate private keys without changing the public key or address on the blockchain, through a process called proactive secret sharing. This adds additional security, since even if one part is compromised, the old parts can be replaced without exposing the entire key. An attacker would need to compromise several parts at the same time to breach the system.
Conclusion: Is Multiparty Computation the future of wallets?
MPC wallets provide collaborative and private security that positions them as a fundamental technology for protecting digital assets. The decentralization of the signature process and the protection of private keys make it a robust solution compared to other technologies.
However, technical complexity and lack of standardization remain barriers to mass adoption. If these challenges are overcome, MPC could become the de facto standard for cryptocurrency security, both in enterprise environments and for advanced users.
In the next article, we will explore the Threshold Signature Scheme (TSS) and explain how a threshold number of participants can generate signatures without the need to reconstruct the private key. TSS is an evolution of the multisignature scheme, but with better properties, although its implementation can be more complex. Don’t miss it!
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