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Cryptocurrency wallets are gaining burgeoning popularity with the larger adoption of cryptocurrencies worldwide. When it comes to important aspects of a cryptocurrency wallet, security remains at the top. While a multi-signature wallet (also referred to as a multisig wallet) is considered a secure option, some believe that an MPC (Multiparty Computation) wallet provides high-level security.
In this article, we will learn about the security features of both MPC wallet and multi signature wallet. So let us delve deeper to gain an understanding of both.
Background of MPC
MPC is conceptualized as a new cryptographic mechanism that divides the private keys into multiple parts. The main ideology of this technology is that the private portion of the key pair can be maintained as N parts, signifying that M of these parts need to combine to create a signature using the private key. It is known as M-of-N technology, wherein M divisions out of the total N are created to formulate a protective layer for the underlying crypto assets.
It helps in mitigating the following two critical security risks (though also addressed by multi signature wallet):
In any case, if less than M parts are hacked, the hackers would not be able to create a valid signature.
Easy Backup facility
If any specific key is lost or stolen (in a case where M is less than N) then the lost part can be easily recovered with an efficient backup facility. It facilitates each part to remain separate and avoid any failure.
Comparison to Multi-Signature
Companies offering cryptocurrency wallet development services often make use of M-of-N keys for wallets to maintain the safety and security of assets. From the functional viewpoint, both multi-signature wallets and MPC based wallets make use of M-of-N keys for authorizing the signature wallet. The difference lies in the implementation part which makes multisig a better technology to opt for. A multi-signature wallet generates distinct signatures through distinct private keys to enable security of the wallet; while MPC generates a single signature irrespective of private keys participated.
The problem of accountability persists with MPC-based wallets but does not exist in multi-signature wallets. It is always possible to predict which part of the key was used to sign a particular transaction through a multi-signature wallet. On the other hand, through MPC technology it is not possible to distinguish and identify which part of the key was used to sign the transaction. After the process of MPC is complete, all of the signatures look identical.
Therefore accountability remains a major drawback in MPC-based wallets. It is of utmost importance to define which individual signed the transaction in the monetary system. The inability to recognize the individual may possess some serious threat. Let’s further understand how it affects the mechanism of working.
Keys pairs are stored with different individuals. In case say any co-signer performed an illegitimate activity then it is important for the investigator to acknowledge who perpetrated the crime. No innocent one should be made guilty. In a multi-signature wallet, every co-signer who validated the transaction is rightly identified while it is not possible to identify who performed the transaction in an MPC wallet.
The keys are stored at various separate locations. If in case 3 out of 5 keys are required to validate the transaction, it becomes critical to identify from which locations participants participated to validate the transaction and it is made possible only through the multisig wallet.
• Multi-institutional Security
Keys are at times stored at different independent locations and with different companies. It is a basic mechanism to enable a backup facility with independent parties. With a multi-signature wallet, the owners of funds feel safe and secure as the person in charge of the backup key is easily identified. However, on the other hand, as MPC wallets lack accountability, the owners of the funds do not feel secure because it is not possible to identify the individual who committed fraud.
The proprietary mechanism with limited or no public review is used for MPC implementations. The cryptographic elements and algorithms are not mathematically proven and rather rely more on peer-to-peer review before any acceptance.
On the other hand, multi-signature technology is fully tried and tested. It is based heavily on scrutinizing algorithms with various implementations. They work on the mechanism of simple cryptographic algorithms and pose no additional cryptographic risk.
Lack of Hardware Security Module (HSM) Support
MCP-based signatures lack hardware security modules that support the technology. Though HSM has been in use for decades, it does not fully support the MPC cryptography. For maintaining full security, there is a need to have an exclusive customized HSM to make it a safer technology. But arguably, it will remain less safe than multi signature wallet mechanism.
Considering the drawbacks of an MCP wallet, complete reliance on MPC is not recommended. It can be used in conjunction with multi-signature wallets. Complete dependence on MPC technology can reduce security and even eliminate the accountability of transactions.
A multi-signature wallet, on the other hand, offers better security and accountability of transactions.
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