The world of digital assets and cryptocurrencies has given rise to a variety of wallet types, each providing various degrees of security and functionality. Traditional wallets, also known as single-sig wallets, have been popular for their simplicity but may lack the security features necessary for today's evolving digital asset landscape. This has led to the development of advanced wallet types such as multi-party computation (MPC) wallets and multisig wallets, which offer enhanced security features and wallet architecture to protect users’ private keys and digital assets.
In this article, we delve into the technologies behind MPC and multisig wallets and compare their features to help you better understand which wallet type is best suited for your crypto needs.
Multisig wallets, also known as multi-signature wallets, require authorization of transactions through multiple keys. These wallets provide an additional layer of security by ensuring that multiple parties must sign/approve a transaction before it can be executed. You can think of a multisig wallet like a board of directors, where all members must give their approval for key decisions.
How Multisig Wallets Work
Multisig wallets use an m-of-n scheme, where m out of n parties must sign/approve a transaction. The most common configurations are 2-of-3 and 3-of-5, which balance security with simplicity. In a 2-of-3 scenario, for example, three parties will hold private keys and at least two of them must provide their signatures to authorize a transaction. If the required number of signatures is obtained, the transaction will be executed. Otherwise, it will be canceled.
- Enhanced security: Multisig wallets require multiple signatures from different parties to authorize a transaction, reducing the reliance on one single entity and thus preventing a single point of failure.
- Increased transparency: Transaction policies, signers and actual transactions are all made publicly available on chain or in the code. This ensures that individuals who direct funds are always held accountable for their actions.
- Limited protocol support: Not all blockchain protocols support multisig wallets, and those that do may require custom coding, potentially introducing security vulnerabilities.
- Slower transaction speed: Transactions can take longer to process in multisig wallets, as they require the coordination of multiple parties to obtain the necessary signatures. This can be particularly cumbersome when participants are spread across different time zones.
MPC wallets employ secure multi-party computation, a subfield of MPC cryptography, to safeguard transactions. With the MPC technology, private key-shares are individually generated, encrypted and divided among multiple parties, each blind to the other. These parties can then jointly sign transactions without ever exposing their private key-shares or materializing the full private key at any time.
How MPC Wallets Work
MPC wallets utilize cryptographic protocols to enable the secure management and usage of digital assets. The process involves multiple parties jointly computing cryptographic operations without revealing their individual private key-shares. When a transaction needs to be authorized, a predetermined number of parties must use their private key-shares to compute the transaction signature collaboratively. Because the private key is never reconstructed nor stays on a particular device at any specific instance of time, MPC wallets can offer an additional layer of security, making key theft and internal fraud and collusion more challenging for bad actors.
- Increased security: MPC wallets employ a collaborative approach where the private key is split up, encrypted, and divided across multiple parties/devices, each blind to the other. This decentralized nature enhances security by eliminating a single point of failure.
- Full privacy: MPC wallets ensure privacy by preventing any individual party from knowing the complete private key or input data. This setup makes insider attacks more challenging and enhances privacy for sensitive transactions.
- Chain agnostic: MPC wallets that adhere to the ERC-4337 standard can work across all EVM-compatible blockchains.
- Increased complexity: MPC wallets can be more difficult to set up and manage than single-sig wallets, due to private key sharding and the joint signing process.
- Incompatibility: MPC wallets may not be compatible with the majority of conventional wallets, such as Ledger and Trezor, due to the absence of a seed phrase or complete private keys on a single device.
Comparing Multisig and MPC Wallets
While both MPC wallets and multisig wallets aim to provide a high degree of security for digital asset management, there are some key differences between the two in terms of adaptability, privacy, and versatility.
Selecting the right wallet type depends on your business needs and preferences. It is essential to consider factors such as the number of parties involved, the level of security required, and the complexity of use before choosing a wallet type. To meet the evolving needs of users, Cobo offers both multisig wallets (i.e., Cobo Safe) and MPC wallets (i.e., Cobo MPC Co-managed Wallet).
Built on top of Safe (previously Safe), the de-facto multisig wallet, Cobo Safe is packed with powerful features including robust role-based access controls, custom workflow support, and advanced risk management tools.
Cobo MPC Co-managed Custody is designed to allow you full control over your assets. It leverages cutting-edge MPC technology to implement a threshold signature scheme (TSS).
At Cobo, we are committed to build state-of-the-art, holistic custody solutions in meeting and exceeding industry benchmarks in technological innovation, security, privacy and availability. Curious about Cobo’s multisig wallets and MPC wallets? Book your demo today!