Multi-sig wallets with MPC Wallet give businesses joint control of cryptocurrencies and other digital assets. However, a multi-signature wallet requires multiple private keys to sign a transaction, while an MPC wallet divides a single cryptographic key into multiple shares and requires a certain number of shares to authorize a transaction. it occurs.
What are single-signature wallets?
Single-signature wallets are the simplest key management systems. In this wallet, a private key drives transactions on the blockchain. Any entity with access to the private key would have complete control over the stored cryptocurrency.
The private key can be considered a “single point of failure” in a single-signature wallet. If the private key is compromised, all funds stored in this wallet can be stolen.
Therefore, single-signature wallets are primarily used to hold relatively small amounts of cryptocurrencies used by individuals for active investments and other DeFi products. These are often used in conjunction with cold wallets, which are used to store large portions of investor funds offline.
If you lose your private key, there is no way to recover it. Your money can also drown forever. This lack of redundancy makes single-signature wallets a potentially risky option for storing large amounts of cryptocurrency, as seen in stories from people who have lost their hard drives containing bitcoin or lost access to their wallets. Forgot your password for .
There is no method to provide full or partial access to the funds, as only a private key gives complete control over the funds.
Ultimately, single-signature wallets are more suitable for individuals rather than groups, communities, treasuries or companies, where transactions often need to be approved by multiple stakeholders.
What are multi-sig wallets?
A multi-signature wallet is a cryptocurrency wallet that addresses some of the major limitations of single-signature wallets, such as the lack of shared access, and more by requiring multiple private keys (cosigners) to sign. Adds security measures. same signature. Private keys do not need to reside on the same device. They can spread to different devices in different regions.
Although multi-sign technology is not new, it was first used in the cryptocurrency sector in 2012 for bitcoin transactions, which developed a new type of address called “pay-to-script-hash (P2SH)”. And the first multi-sign wallet was created in 2013.
How do multi-sig wallets work?
Consider holding BTC in Company A’s treasury. Company A wants to send bitcoins to another entity, for example Company B.
In this case, with a multi-signature wallet, the company can ensure that funds will be paid out only after a majority of stakeholders (eg, at least 5 out of 7 board members) have signed their private keys.
This allows Company A to distribute only the permitted amount of funds, without requiring the individual to disclose its private key.
To the smallest detail, the main objective behind multi-sig wallets is to distribute control of funds in a single wallet without exposing the private keys.
How do multiple private keys sign the same transaction?
Multi-signature wallets use an algorithm called ‘M-of-N’. This algorithm requires at least M out of N private keys to sign a transaction before it is published.
The common belief is that the greater the number of signatures required (M) and the total number of keys available (N), the more secure the wallet becomes.
For example, the 3/5 multi-signature algorithm requires three of the five private keys to sign a transaction before it can be executed. 5 of 7 multi-signature requires five of the seven private keys to sign a transaction, and so on.
The “M” and “N” variants can be adjusted as per the institutional requirements of the users during wallet creation. In addition, the M-of-N algorithm provides easy recovery from a lost private key as long as there are enough signatures (M) remaining required for transaction authorization.
General Multi-Sig Wallet Transaction Flow
The general process for multi-signature processing is as follows:
- Generate a multi-signature wallet address from the public keys of the authorized signers.
- Create an offer with all the necessary details, such as the recipient’s address and the quantity of the shipment.
- Co-signers review and accept or decline the transaction proposal.
- Once the required number of signatures have been collected, the transaction is considered official and verified.
- Authorized transactions are published with all signature data for verification and block confirmation.
What is MPC Wallet?
Multi-party computing (MPC) wallets are one of the latest developments in the DeFi space, taking the best parts of single-signature wallets (one private key) and multi-signature wallets (joint control of funds) and combining them into one. Is. Solution. ,
Multipartite computation is a cryptographic technique that enables confidential computation between three or more entities by dividing a cryptographic key into multiple parts so that no single entity can access the original key.
Each signer holds a piece of the private key, but this is not sufficient to regenerate the entire private key. You need a certain number of shares, called a “threshold,” to regenerate the private key or authorize a transaction. This can be set during or after the wallet creation.
Using this technique (called “secret sharing”), an MPC wallet allows all signing parties to create and sign transactions without sharing their private keys with each other.
It differs from a multi-signature wallet because instead of generating multiple private keys, it splits one private key into multiple shares.
Different MPC wallets use different secure multilateral computing protocols. Some commonly used protocols are Shamir’s Secret Sharing (SSS), Yao’s Broken Circuit and Full Homomorphic Encryption (FHE).
MPC Wallet can be used for a variety of applications such as decentralized transactions, key management, distributed storage, and authentication. They are rapidly gaining popularity among businesses and organizations that require shared access to funds.
Normal MPC Wallet Transaction Flow
The general process of MPC operation is as follows:
- Initiate a transaction by sending a request to the wallet provider’s server.
- The server generates a random number and encrypts it with the user’s private key share.
- The server sends the encrypted random number back to the user.
- The user decrypts the random number by sharing the private key.
- Sign the transaction with the decrypted random number.
- Send the signed transaction back to the server.
- The server associates the user’s signature with the signatures of the other parties involved in the transaction.
- The authorized transaction is then broadcast for block confirmation.