Pros and Cons of Multi-sig Wallet and MPC Explored
I had an unfortunate experience with a custodian wallet Celsius, being attracted to its ease of crypto transfer to loved ones in case I passed away. As an alternative, I explored other solutions and a multi-sig wallet seems like a solution, besides having a regulator's approved custodian crypto banks that manage crypto assets. It seems that crypto exchanges also used either multi-sig wallets or Multi-Party Computation (MPC) solutions to secure funds.
A multi-signature (multi-sig) wallet is a type of cryptocurrency wallet that requires multiple signatures or approvals from different parties to authorize a transaction. Here are the pros and cons of using a multi-sig wallet:
|Factors||Multi-Sig Wallets||Multi-Party Computation (MPC)|
|Security||Enhances security by requiring multiple signatures for transaction authorization||Provides strong security guarantees using cryptographic protocols|
|Privacy||Primarily focuses on securing transactions and funds, with limited privacy features||Offers privacy-enhancing techniques, such as secret sharing and secure computations|
|Complexity||Involves coordination and additional administrative overhead, but user-friendly interfaces available||Requires expertise in cryptography and advanced mathematics; can be complex for non-technical users|
|Usability||Widely adopted and supported by cryptocurrency exchanges and wallet providers||Less commonly available and lower adoption rate compared to multi-sig wallets|
Multi-signature (multi-sig) wallets and Multi-Party Computation (MPC) are two different approaches to securing digital assets. Here are the pros and cons of each:
Pros and Cons of Multi-Signature Wallets:
- Enhanced Security: Multi-sig wallets require multiple signatures to authorize transactions, reducing the risk of a single point of failure. Even if one private key is compromised, the funds remain secure as additional signatures are needed.
- Trust and Accountability: Multi-sig wallets are beneficial for shared ownership or partnerships, ensuring that decisions and transactions require consensus among authorized parties.
- Flexibility: Multi-sig wallets allow customization of the required number of signatures for each transaction, providing control and adaptability to specific needs.
- Complexity: Setting up and managing multi-sig wallets can be more complex compared to traditional wallets, as it involves coordination among multiple parties and additional administrative overhead.
- Dependency on Multiple Parties: The involvement and cooperation of all authorized parties are necessary for transaction approvals. If any party is unavailable or uncooperative, it can lead to delays or complications in accessing funds.
- Centralization Concerns: Depending on the configuration, multi-sig wallets may introduce a level of centralization if the majority of signatures are controlled by a single entity or a small group, which can go against the decentralized nature of cryptocurrencies.
Pros and Cons of Multi-Party Computation (MPC):
- Robust Security: MPC provides secure computation protocols that distribute cryptographic keys among multiple parties, ensuring privacy and security without relying on a single point of trust.
- No Single Point of Failure: With MPC, there is no single private key that can be compromised. The cryptographic algorithms and protocols protect against unauthorized access.
- Decentralized Nature: MPC aligns well with the decentralized principles of cryptocurrencies, as it avoids centralization concerns associated with multi-sig wallets.
- Technically Complex: Implementing MPC protocols requires expertise in cryptography and advanced mathematics. It can be challenging for non-technical users to set up and utilize MPC solutions.
- Computational Overhead: MPC protocols involve complex computations, which can require significant computational resources and time, potentially causing delays in executing transactions.
- Limited Adoption and Availability: Compared to multi-sig wallets, MPC solutions are less commonly available and have a lower adoption rate, making it harder to find user-friendly implementations and support.
Ultimately, the choice between multi-sig wallets and MPC depends on the specific requirements and preferences of the user. Multi-sig wallets provide a balance between security and usability, suitable for shared ownership scenarios. MPC, on the other hand, offers stronger security guarantees but involves more complexity and technical expertise. It may be more appropriate for users with advanced cryptographic knowledge or those seeking maximum decentralization and privacy.
Multi-sig wallets also introduced some challenges. We had to establish protocols for key management and ensure that all authorized parties were readily available for transaction approvals. Occasionally, delays would occur if one of the parties was unreachable or unable to sign a transaction promptly.
In the end, even with the research, I still stick to a self-custody wallet until regulators open up crypto to banks. The process of setting up a Mult-Sig Wallet is difficult, requiring the coordination and involvement of multiple parties. Most worked on a 2-of-3 configuration, meaning any two out of three authorized members had to sign off on a transaction. That is not possible when I just want to share it with my wife.
As we navigate the ever-evolving landscape of digital asset security, one thing is certain: the need for robust and innovative solutions will only grow.
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Sky Hoon. Read Full Bio
Website Owner, Twitter-er
He has been trading since 2008. He started this blog to share the journey about option trading. He dabbled in stocks, bitcoin, ethereum (in Celsius Network), ETF (lazy Dollar Cost Averaging) and also built websites for fun. He used this as a platform to share my experiences and mistakes in trading, especially options which I just picked up.