MPC Wallet EXPLAINED

In this post I'll be explaining how MPC wallets work, what MPC is and what the advantages of MPC are.

Let's dive right in!

MPC stands for multi-party computation and it’s a cryptographic protocol that involves distributing a computation across multiple parties where no individual can see the rest of the parties data.

The protocol itself is nothing new, but MPC’s use in crypto has grown in popularity over the last couple of years - largely due to institutional adoption.

MPC wallets use multi-party computation to secure your private keys.

In a standard self-custody wallet like MetaMask, your private keys are stored on your device. This means there’s a single point of failure - if your device is hacked or stolen, you risk losing your crypto assets.

With an MPC wallet your private keys are sharded (split into pieces) and distributed across multiple devices. So if your device is lost or stolen, your crypto won’t be compromised.Similar to a multisig wallet, with an MPC wallet multiple parties are required to approve transactions. So a hacker would need to gain control of the majority of key shards before they could steal your crypto assets.

With MPC, the key shards never need to be reassembled on a single device. So you never risk having your private key in one place. And even if a hacker were to obtain a key shard, it would be impossible for them to derive your private key or sign transactions. This is obviously a massive advantage when it comes to security.

When you set up an MPC wallet you decide the threshold for approving transactions. You can set it up as either ‘m of n’ or ‘n of n’ - meaning either all parties are required to approve a transaction (‘n of n’) or some threshold of parties is required to approve a transaction (‘m of n’).

MPC wallets and multisig wallets are similar in one aspect - both require multiple parties to approve a transaction before it can be executed. However, there are some critical differences between the two.

With a multisig wallet, each party holds their own private key. And each party is signing the transaction separately. Whereas with a MPC wallet, each party holds a key shard and only when the threshold is reached is a signature created. This means the quorum process for an MPC wallet takes place entirely off chain.

This key difference between multisig wallets and MPC wallets, results in some major advantages for MPC wallets.

Firstly, because the private key never exists in a whole state - with an MPC wallet your private key can’t be stolen. A hacker would need to steal the majority of key shards (depending on your quorum policy) before they could sign transactions on your behalf. At the same time, the key shards for an MPC wallet can be refreshed without changing the public address. Whereas with a multisig wallet, the private keys for the individual parties could be compromised. And the public address for a multisig wallet can’t be changed without setting up a new wallet.

The other major advantage is privacy. With a MPC wallet, the entire process happens off chain. Whereas with a multisig wallet, each signature is done on chain - making it possible to track and trace individuals that are part of a multisig, as well as the policies in place.

There are some other critical advantages to MPC wallets over multisig wallets. And I’ve covered them already here: MPC Wallets vs. Multisig Wallets