With the rapidly increasing institutional adoption of digital assets, financial organizations need secure and efficient ways to scale and operate to capitalize on growing demand.
Today, multi-sig and MPC are two of the most common technologies for securing private keys. You may be wondering – which is a better option for my organization?
In this blog post, we’ll walk you through everything you need to know about both technologies so you can get a better sense of which fits your organization’s needs.
The multi-sig challenge
Multi-sig (multi-signature) is a digital signing process that enables two or more users to sign transactions as a group.
Before multi-sig wallets entered the mainstream, cryptocurrencies were generally stored using a single private key. Whoever had access to the private key itself was able to access the funds associated with that key. Multi-sig added an additional layer of security to the equation by creating wallets that require the signature from multiple keys.
While multi-sig offers potential solutions to some of the problems of single-signature wallets (e.g. the single point of failure), it also introduces new issues. This is because when multi-sig was first introduced in 2012, the blockchain space was different in a variety of ways. For example, bitcoin was the only cryptocurrency, so the concept of creating a security technology that would work across multiple blockchains was irrelevant.
In today’s fast-paced digital asset landscape, multi-sig-based solutions can no longer support the needs of a digital asset business because:
Multi-sig is not protocol agnostic
Not all cryptocurrency protocols support multi-sig – and those who do have very different implementations from one another. This makes it more difficult for multi-sig wallet providers to securely support new chains.
With an on-chain multi-sig solution, each protocol requires the wallet provider to implement a different code. When a multi-sig implementation goes wrong, various issues can arise:
- The Multi-sig Parity Wallet – Poor implementation lead malicious actors to steal around $30m worth of Ethereum in one of the biggest wallet hacks to date.
- Parity Wallet Hacked (Again) – A hacker again gained access to the wallet and froze $300m worth of Ethereum. Some customers lost up to $300k worth of digital assets.
- Vulnerabilities in Bitcoin Multi-sig – Discovered by the Fireblocks Research team, a vulnerability in the bitcoin multi-sig check implementation was deployed in development environments and, despite the popularity of this codebase, the vulnerability still remains.
Multi-sig is operationally inflexible
Multi-sig cannot offer the operational flexibility organizations require as they grow.
As your team expands, you will need to adjust the process of accessing and transferring your digital assets. This can include changing the number of employees required to sign a transaction, adding new key shares as you hire new employees, revoking key shares as employees leave, and modifying the required threshold to sign transactions (e.g. from ‘3 of 4’ to ‘4 of 8’).
In these sorts of scenarios, multi-sig addresses create various obstacles, as they are pre-set to the wallet.
MPC is inherently designed to address today’s challenges
MPC (multi-party computation) has quickly become accepted as the next generation of private key security.
MPC removes the concept of a single private key; such a key is never gathered as a whole, neither during the first creation of the wallet nor during the actual signature. MPC follows a set of steps to guarantee that there is never a single point of compromise of the private key:
- Individual secrets are randomized by each of the several (always more than 3) endpoints – either servers or mobile devices. Those secrets are never shared with each other.
- The individual endpoints engage in a decentralized wallet creation protocol in which they compute the public key (wallet address) that corresponds to the set of individual private shares.
- When a signature on a blockchain transaction is requested, a quorum (at least 3) of endpoints engage in a distributed signature process where each one of the endpoints individually validates the transaction and policy and signs the transaction.
In a similar fashion to multi-sig, the MPC private key protection layer removes the single point of compromise from both external hackers and insiders – as the private key is never concentrated on a single device at any point in time.
MPC frees digital asset operations
MPC’s distributed nature allows team members to require multiple authorizers for a transaction and sign transactions without being in the same location. Operationally, it’s a significant advancement over multi-sig due to its inherent flexibility; unlike multi-sig, MPC allows for ongoing modification and maintenance of the signature scheme.
To use the example detailed above, changing from a ‘3 of 4’ set-up to any other set-up would simply require existing shareholders to agree on the new distributed computation and the addition of a new user share.
In this process, the blockchain wallet address (deposit address) is maintained so that you don’t need to create a new wallet, move any funds, or provide counterparties with a new address.
MPC was designed to address new requirements of the digital asset space that have emerged as institutions have entered the ecosystem – and it’s designed to be future-proof.
MPC vs. multi-sig breakdown
Looking to get more information on how MPC and multi-sig stack up? Check out the Ethereum ROI calculator to learn exactly how much organizations are saving on ETH deposit address management by switching from multi-sig to MPC.