What is an MPC Wallet?

Foreword

As the gateway to the Web3 world, the security and user experience of wallets influences users’ ability to navigate the Web3 world seamlessly. Therefore, decentralized wallets play a crucial role in the crypto space. One of the primary concerns for users when using decentralized wallets is the management of private keys. Whether the private key is leaked or forgotten, it will lead to the loss of assets. MPC wallets that utilize off-chain multi-party computation are created to address these issues.

What is an MPC Wallet?

MPC stands for Secure Multi-Party Computation, which is a private computing technology. An MPC wallet combines MPC technology with decentralized wallets to perform multi-party computation on private keys. The significant difference between MPC wallets and traditional decentralized wallets lies in their digital signature mechanism. Traditional decentralized wallets use a randomly generated private key to generate a digital signature to transfer assets.

On the other hand, in MPC wallets, the signing process involves splitting the private key into multiple shares. These shares are combined into a complete private key during the off-chain signing process. This enables complex verification methods such as multi-signature and cross-chain transactions.

In other words, in the private key management process of MPC wallets, the private key never appears in its entirety, and the entire computation is performed off-chain, independent of smart contracts. This is a characteristic of MPC wallets: by splitting private keys into shares, they ensure the availability of the private key while avoiding issues associated with private key storage, thus diversifying risks.

How MPC Wallets Work

To understand how MPC wallets work, we must first know what MPC (secure multi-party computation) is. MPC is a private computing technology that allows a function to compute data inputs and ensures that each user only receives the output of the function without gaining access to other participants’ information. For example, through secure multi-party computation, two individuals can determine who is wealthier without disclosing their actual wealth or involving a third party.

In the case of an MPC wallet, the private key is split, with each party holding only a share of the private key. When a signature is required, the split private key pieces are combined to form a complete private key. Through multi-party computation, each party does not need to reveal their individual information. Even if a hacker manages to access a single private key share, she/he cannot extract assets from the MPC wallet.

An MPC wallet works as follows: multiple parties collaborate to create a wallet, each holding a private key share instead of a complete one. During transactions, signatures from all the parties are required to complete a transaction.

Advantages of MPC Wallets

• Safe: The most direct advantage of MPC is that it is safer than traditional decentralized wallets because it reduces the risk of stolen private keys. Traditional decentralized wallets use a single private key to control assets, while MPC wallets split private keys into multiple shares. The digital signature mechanism of MPC wallets is based on distributed multi-party computation.
• More efficient: MPC wallets eliminate users needing to remember their private keys or mnemonic phrases. Since there are no private keys to manage, the wallet operation becomes more efficient. The split private key is stored online, improving user experience significantly.
• Cost-efficient: The MPC wallet appears as a single address on the chain, and the signature process occurs off-chain. This reduces gas fees and the lost private key shares can also be recovered off-chain with a lower cost.

Risks of MPC Wallets

• Increased security risks in off-chain management: The digital signature of the MPC wallet is carried out off-chain, which limits transparency to some extent and poses a certain centralization risk. Moreover, the MPC wallet server uses an encryption machine. Once these devices are damaged, it can be challenging to recover the private keys.
• Poor compatibility: Since there are no mnemonic phrases and no complete private keys stored on-chain, there is a lack of standardized MPC algorithms. Therefore, MPC wallets are not compatible with most traditional decentralized wallets.
• Limited open source availability: Most MPC libraries are not yet open source, requiring further development. In case of any risks, it becomes challenging to conduct independent audits and analyses of the project.

MPC Wallets VS Smart Contract Wallets

The essence of the smart contract wallet is a smart contract that looks like a private key wallet, allowing users to manage funds and interact with dApps. This type of wallet is based on smart contracts rather than terminal accounts. They are deployed on the blockchain and provide additional built-in functions like multi-signature and time locks.

Different from the split private keys in MPC wallets, multi-signature wallets use different private keys to sign transactions on the blockchain. This improves compatibility and scalability between smart contract wallets and existing private key wallets. Furthermore, since smart contract wallets are essentially smart contracts, they are more open-source than MPC wallets. Anyone can audit the smart contract wallet, thereby identifying and addressing any wallet risks. Additionally, since multiple signatures are required to execute transactions, there will be no single point of failure.

The most significant difference between smart contract wallets and MPC wallets is that smart contract wallets are themselves smart contracts. This enables them to implement any logic but may increase gas fees, making the cost of using the wallet higher. Moreover, smart contract wallets are bound to the specific blockchain ecosystem, requiring redevelopment of the accounting logic when deploying the wallet on different chains, which incurs high costs. This is one of the reasons why smart contract wallets have not gained widespread support.

On the other hand, MPC wallets, as an off-chain solution, do not involve modifications to the contract layer, resulting in lower user costs. Therefore, in the short term, the MPC wallet solution is more feasible.

Typical Examples of MPC wallets

Bitizen

Source: Bitizen official website https://bitizen.org/

Bitizen is a user-friendly product with a low entry barrier, aiming to make MPC wallets accessible to ordinary consumers. It is a leading solution that implements multi-party computation (MPC) for private key generation, primarily using a threshold signature scheme. The product maximizes the adoption of MPC signing protocols.

It offers two main modes of operation: self-custody (where one key share is stored in the user’s cloud storage and another on the platform’s server) and hybrid custody (where one key shard is stored in the user’s device’s cloud server like iCloud or Google Drive, one on the platform’s server, and an additional share can be backed up on another device owned by the user). This unique signing mechanism enhances security, usability, and resistance to censorship. Furthermore, it supports all major blockchains and tokens, including NFTs, DIDs, and SBT.

OKX Wallet

Source: OKX official website

https://www.okx.com/web3/hot/mpcwallet

The OKX keyless wallet is based on MPC technology, which transforms a single complete private key into three individually generated key shares that are stored separately. When signing transactions, two out of the three key shares are used, eliminating the need for a complete private key.

When creating a wallet, the OKX server generates key share 1, while the user’s device generates key shares 2 and 3. Key share 2 is encrypted and stored on the user’s device, while key share 3 is encrypted and backed up on iCloud or Google Drive. In transaction signing, key share 1 and key share 2 are used, while key share 3 serves as a backup. Additionally, OKX introduces an emergent withdrawal feature, allowing users to withdraw their assets using two self-managed key shares (key share 2 and key share 3) in emergent situations. This implementation realizes a truly decentralized, self-custodial, and keyless wallet. The wallet can be easily created with an OKX account, eliminating the need for managing complex private keys or mnemonic phrases and emphasizing a user-friendly experience.

Safeheron

Source: Safeheron official website

https://www.safeheron.com/en-US/

Safeheron is a self-custody service provider for digital assets that utilizes MPC+TEE (Secure Multi-Party Computation + Trusted Execution Environment) technology. It offers institutional-grade custodial wallets tailored for small and medium-sized teams, providing a comprehensive MPC technology solution with a strong focus on security.

Safeheron adopts a hybrid custody model with three key shares: one on the user’s local device (APP) and two on the platform’s servers. By ensuring that users retain control over their private keys, Safeheron eliminates the systemic risks associated with single-point failures and centralized key storage.

Conclusion

As an off-chain solution, MPC wallets combine multi-party computation with decentralized wallet technology, introducing a new approach to asset protection. They provide users with a keyless experience, lowering entry barriers for ordinary consumers while enhancing asset security and expanding application scenarios in the enterprise market. MPC wallets have diverse use cases and have the potential to become the next-generation solution for crypto wallets.