MPC Wallets vs. Multi-Sig Wallets

Both MPC and multi-sig wallets enable business to ensure shared control over cryptocurrencies and other digital assets. However, multi-sig wallets require multiple private keys to sign a single transaction, while MPC wallets splits a single cryptographic key into multiple shares and requires a set number of shares to authorize a transaction. 

Key Takeaways

• Single-signature wallets cannot provide shared control over digital assets, which is paramount for companies, groups, and organizations.

• Multi-sig wallets solve the problem of shared control by introducing an approval quorum where multiple signatures from different cosigners are required to authorize a transaction.

• MPC wallets are an innovation in crypto wallet technology that addresses the limitations of multi-sig wallets, such as flexibility, privacy of approval quorums, speed, and more.

Cryptocurrency wallets are indispensable if you want to navigate the crypto waters. But not all of them are created equal.

Think of crypto wallets as virtual repositories offering unparalleled convenience and accessibility, making them a fundamental component of new-age financial (decentralized) interactions.

Crypto wallets don’t store cryptocurrencies; instead, they hold the private key that allows users to access and use funds belonging to that private key. Hence, a compromised private key can place all assets linked to that private key at risk.

Each type of wallet (single-signature, multi-sig, and MPC) has its own way of storing and managing private keys. This key management system is a crucial factor in wallet security.

That’s why it is essential to understand the differences between various types of wallets before choosing. 

This article will comprehensively compare MPC wallets and multisig wallets, two of the most popular wallet types available today.

What Are Single-Signature Wallets?

Credits: Sankrit

Single-signature wallets are those with the most straightforward key management system.

In this wallet, a single private key executes transactions on the blockchain (signing). Any entity with access to the private key will have complete control over the stored cryptocurrencies.

Single Point of Failure

The private key in single-signature wallets can be considered a “single point of failure.” Any funds stored in that wallet can be stolen if the private key is compromised.

Hence, a single-signature wallet is mainly used by individuals to hold relatively small sums of cryptocurrencies that are used for active trading and other DeFi  products. These are usually used alongside a cold wallet, which is used to store the bulk of the investor’s funds offline. 

No Recovery Option

If you lose your private key, there is no way to recover it. Your funds, too, may be lost forever. Such lack of redundancy makes single-signature wallets a potentially risky choice for storing large amounts of cryptocurrencies, as seen in stories of people who’ve misplaced their hard drives containing bitcoin or have forgotten their password to access their wallets. 

Lack of Shared Access

There is no method to delegate complete or partial access to funds, as just one private key grants total control over funds.

As a result, single-signature wallets are better suited for individuals and not groups, communities, treasuries, or companies, where transactions should typically be approved by multiple stakeholders.

What Is A Multi-Sig Wallet?

Credits: Sankrit

Multi-Signature Wallet (a.k.a. multi-sig wallet) is a cryptocurrency wallet that addresses some of the key limitations of single signature wallets, like lack of shared access, and introduces more security measures by requiring multiple private keys (cosigners) to sign a single transaction.

The private keys needn’t be present on the same device, too. They can be spread across different devices across different regions.

Multi-sign technology is not new. But it was first used in the cryptocurrency space in 2012 for a Bitcoin transaction using a new type of address called “pay-to-script-hash (P2SH)“, and the first multi-sig wallet was created in 2013.

How Multi-Sig Wallets Work

Consider Company A holding BTC in its treasury. The company wants to send bitcoins to another entity, say, Company B.

With a multi-sig wallet, the company could ensure the funds are disbursed only after the majority of stakeholders, say at least 5 out of 7 board members, have signed with their individual private keys.

This lets Company A disburse only authorized funds without any individual having to reveal their own private keys.

Getting down to brass tacks, the primary intent behind multi-sig wallets is to distribute control of funds in a single wallet without revealing private keys.

How Do Multiple Private Keys Sign a Single Transaction?

Multi-signature wallets use an algorithm known as ‘M-of-N.’ 

This algorithm requires at least M out of N private keys to sign a transaction before it is broadcasted. 

The general consensus is that the higher the number of signatures required (M) and the total number of keys available (N), the more secure the wallet becomes. 

For instance, a 3-of-5 multi-sig algorithm requires three out of five private keys to sign a transaction before it is executed. 

A 5-of-7 multi-sig would require five out of seven private keys to sign the transaction and so on. 

The variables “M” and “N” can be set according to the organizational requirement of users at the time of wallet creation.

Moreover, M-of-N algorithms provide easy recovery from lost private keys as long as there are enough remaining signatures (M) needed for transaction authorization.

General Multi-Sig Wallet Transaction Flow

The general process of a multi-sig transaction is as follows: 

1. Generate a multi-sig wallet address from the public keys of the authorized signers

2. Create a proposal with all the necessary details, such as the recipient’s address and the amount to be sent

3. Cosigners review the transaction proposal and either accept or reject it

4. After the required number of signatures is collected, the transaction is considered authorized and validated

5. The authorized transaction is then broadcasted to the blockchain with all signature data for validation and block confirmation.

What Is An MPC Wallet?

Credits: Sankrit

Multi-party computation (MPC) wallets are one of the most recent developments in the DeFi space that takes the best parts of single signature wallets (one private key) and multi-sig wallets (shared control of funds) and combines them into one solution.

Multi-party computation is a cryptographic technique that enables privacy-preserving computation among three or more entities, by splitting a single cryptographic key into multiple pieces in such a way that none of the entities alone can gain access to the original key.

Each signer holds one piece of the private key, but this is not enough to reconstruct the entire private key.

To reconstruct a private key or authorize a transaction, you need a certain number of shares called “threshold.” This can be set at the time of wallet creation or later.

Using this technique (called “Secret Sharing”), an MPC wallet allows all signing parties to create and sign transactions without ever having to share their private keys with each other.

This is different from a multi-sig wallet because it splits a single private key into multiple shares rather than generating multiple private keys.

Different MPC wallets use different secure multi-party computation protocols. Some commonly used protocols are Shamir’s secret sharing (SSS), Yao’s garbled circuit, and Fully Homomorphic Encryption (FHE).

MPC wallets can be used for a variety of applications like decentralized transactions, key management, distributed storage, and authentication. They are increasingly gaining traction among businesses and organizations that require shared access to funds.

General MPC Wallet Transaction Flow

The general process of an MPC transaction is as follows:

1. Initiate a transaction by sending a request to the wallet provider’s server.

2. Server generates a random number and encrypts it with the user’s private key share.

3. The server sends the encrypted random number back to the user.

4. User decrypts the random number with their private key share.

5. Sign the transaction with the decrypted random number.

6. Send the signed transaction back to the server.

7. Server combines the user’s signature with those of other parties involved in the transaction.

8. The authorized transaction is then broadcasted to the blockchain for block confirmation.

MPC vs. Multi-sig: Approval Quorum

Approval quorum refers to the minimum number of signatures required to authorize a transaction. Some approval quorums also define the exact order of signatures.

MPC

MPC wallets split one private key into “shares” instead of using multiple private keys. So, they use a “threshold” determined at the time of wallet creation or later. The threshold determines how many shares are needed to reconstruct the private key and authorize a transaction.

This approval quorum is flexible and can be changed to accommodate more or less participating entities at any time in the future without requiring a new wallet setup.

Multi-sig

Multi-sig wallets use multiple private keys (say “N”) and require M-of-N (“M” being a number between 1 and N) private keys to authorize a transaction. 

This approval quorum is rigid and can only be defined during the wallet creation process. New wallets must be created to accommodate any changes.

MPC vs. Multi-sig: Multichain Support

Businesses dealing in or holding digital assets tend to store them on multiple blockchains, either to diversify their holdings or for other purposes.

MPC: Flexible

MPC wallets are typically blockchain-agnostic and can be used with any blockchain that supports ECDSA (Elliptic Curve Digital Signature Algorithm) and EdDSA (Edwards-Curve Digital Signature Algorithm) cryptography.

Simply put, a single MPC wallet can support assets from multiple blockchains.

Multi-sig: Rigid

Multi-sig wallets are not blockchain agnostic and can only be used with specific blockchains. This means you need to create different multi-sig wallets for each blockchain you want to use.

This means that businesses will need multiple wallet solutions to store assets across various blockchains.

MPC vs. Multi-sig: Key Sequence Privacy

Some groups or businesses may prefer safeguarding their key sequence to protect stakeholders’ privacy or the approval quorum.

MPC: Private

In an MPC wallet, only one private key signature is broadcasted to the blockchain for block confirmation. The rest of the computation happens off-chain. Hence, hackers cannot see who the other signers are, making MPC wallets ideal for those who want to keep their identities and approval quorums private.

Multi-sig: Exposed

In a multi-sig wallet, all signatures must be broadcasted to the blockchain for block confirmation. This means that hackers can see who the other signers of a transaction are as well as how many signatures are needed to approve it.

MPC vs. Multi-sig: Transaction Speed and Cost

Transaction speed and cost are important factors to consider when choosing wallets.

MPC: Faster and Cheaper

As all calculations happen off-chain, the transaction broadcasted to the blockchain for confirmation at the end is small. This lowers the fee and improves speed as there is more incentive for miners or validators to add an MPC transaction to a block sooner.

Multi-sig: Slower and Costlier

Transaction from a multi-sig wallet is usually more expensive because there are multiple private key signatures that have to be broadcasted to the blockchain. As a result, the wallet owner will need to pay a hefty fee if they want their transaction to go through early.

Differences Between MPC Wallets and Multi-sig Wallets

Here’s a detailed breakdown of how MPC wallets and multi-sig wallets differ from each other:

Conclusion

Multi-sig wallets and MPC wallets are designed for business, organizations, and groups that want to have shared access to on-chain digital assets.

Both types of wallets have their pros and cons, but the advantages of MPC wallets outweigh those of multi-sig wallets in most scenarios where shared control is needed.

MPC wallets have a slightly more complicated implementation compared to multi-sig wallets. This is, however, a one-off task and wallet management becomes easier down the road.

If businesses want a wallet with easier implementation, then they can consider multi-sig wallets as an option.

Use this guide to complement your research and not as a final verdict. Always do your own research before making any financial decisions.

FAQ

What is a multi-signature crypto wallet?

A multi-signature crypto wallet (a.k.a. multi-sig wallet) is a cryptocurrency wallet that requires multiple private keys to sign a transaction in order to authorize it and add it to the blockchain.

Is MetaMask a multi-sig wallet?

No. MetaMask is not a multi-sig wallet. It is a single-signature wallet by default, which can interact with multi-sig wallets.

What is a multi-sig wallet smart contract?

A multi-sign wallet smart contract is a smart contract that implements the multi-sig wallet functionality on the blockchain. This smart contract-based approach is why the approval quorum cannot be changed after wallet creation.

What are some popular MPC wallets?

Some of the most popular MPC wallets are:

• Fireblocks MPC Wallet

• Zengo MPC Wallet

• Qredo MPC Wallet

• Fractal MPC Wallet

• Safe (formerly Gnosis Safe)