What is an MPC wallet?

What is an MPC wallet?

With ERC-4337 going live on Ethereum and EVM-compatible blockchains, account abstraction is paving the way for a much better web3 wallet user experience than what traditional wallets enable today. With ‘smart accounts’ now possible, and as more companies opt to provide their audiences with improved user experiences, many are turning towards different types of smart contract wallets — such as MPC wallets.

MPC technology has been around for a long time, but its applications to the way web3 wallets work have just begun springing up — providing the foundation for better user experiences, increased security, and streamlined transactions.

But what even is an MPC wallet in the first place? Why is it better than other smart contract wallet options? What use cases does it unlock? And how do you use or build one?

In this blog post, we’ll demystify everything you need to know about MPC wallets. We’ll go over what an MPC wallet is, how it works, what use cases it enables, and how to get started with different MPC wallet options — whether you’re a user, or a developer.

What is an MPC wallet?

An MPC wallet is a type of smart contract wallet that leverages Multi-Party Computation technology to allow multiple parties to securely control and manage digital assets on the blockchain. Unlike traditional wallets (EOAs) that rely on a single private key, MPC Wallets use advanced cryptographic techniques to ensure that the private key is never exposed or stored in one location, adding an extra layer of security.

MPC wallets play a crucial role in the web3 ecosystem — providing enhanced security, flexibility, and control for the web3 wallet experience. By allowing multiple parties to participate in the management of digital assets, MPC Wallets enable improved security & risk mitigation, more efficient asset management & transfer, advanced access control & permissions, and streamlined collaboration between different parties.

How does an MPC wallet work?

An MPC wallet leverages Multi-Party Computation (MPC), a cryptographic technique that allows multiple parties to jointly compute a function without revealing their individual inputs. In the context of an MPC Wallet, this means that the traditional private key is split into multiple shares, with each share distributed to different parties, such as wallet users or trusted servers.

This distributed approach enhances security, as no single party has access to the complete private key, eliminating single points of failure. When a transaction requires signing, the involved parties collaborate to generate the signature without reconstructing the private key, ensuring that the assets remain secure throughout the process.

When a transaction is initiated, the involved parties—typically the user and the wallet provider's server—start an MPC protocol to jointly sign the transaction. Each party holds a share of the private key, which they use to compute their individual signature shares. These shares are then combined to produce a valid signature for the transaction.

Throughout the process, the private key shares are never exposed, and the parties cannot access each other's shares. This ensures that even if an attacker compromises one party, they cannot gain full control over the wallet or the assets.

What is an MPC wallet used for? 4 example use cases

  1. Team wallets for organizations, DAOs, and companies: MPC Wallets enable secure collaboration and decision-making, as multiple stakeholders can jointly manage the wallet and approve transactions. This can be useful for decentralized organizations, companies, and project teams that need a secure and efficient way to manage their assets.
  2. Escrow services: MPC Wallets can facilitate secure escrow services, with parties holding private key shares, ensuring that transactions only go through when all conditions are met.
  3. Multi-user wallets for investment clubs or consortiums: MPC Wallets can enable groups of investors to jointly manage their investments, making decisions together and requiring consensus for transactions.
  4. Secure key management for exchanges and custodial services: Exchanges and custodial services can use MPC Wallets to enhance their security, ensuring that the private keys for user assets are distributed and not susceptible to single points of failure.

Pros and cons of an MPC wallet

Pros of MPC wallets

  1. Enhanced security through the distribution of private key shares: Multi-Party Computation (MPC) wallets divide the private key into multiple shares, which are distributed among different parties. This approach mitigates the risk of a single point of failure and reduces the chances of theft or unauthorized access.
  2. Improved access control and permissions: MPC wallets enable more granular access control and permission settings, allowing users to define roles and responsibilities for each participant. This feature is particularly useful for organizations that require strict control over their digital assets.
  3. Streamlined collaboration and decision-making: By requiring multiple parties to sign off on transactions, MPC wallets encourage collaboration and collective decision-making. This setup helps prevent unauthorized transactions and ensures that all stakeholders are involved in crucial decisions.
  4. Support for complex transaction requirements: MPC wallets cater to sophisticated transactional needs, such as time-locking, multi-step approval processes, and spending limits. This functionality is essential for organizations with complex financial operations or compliance requirements.
  5. Chain-agnostic, supporting all EVM-compatible blockchains (if ERC-4337 compliant): MPC wallets that adhere to the ERC-4337 standard can work across all EVM-compatible blockchains.

Cons of MPC wallets

  1. Increased complexity compared to single-signature wallets: MPC wallets can be more complex to set up and manage than single-signature wallets, due to the distribution of private key shares and the need for multi-signature approvals. This complexity might be overwhelming for some users, especially those who are new to cryptocurrency management.
  2. Potentially slower transaction times due to multi-signature requirements: As multiple signatures are required for transactions in MPC wallets, transaction times may be slower than those of single-signature wallets. The need to coordinate between different parties and obtain their signatures can cause delays, particularly when parties are spread across different time zones.
  3. May require more technical expertise to set up and manage: MPC wallets typically demand a higher level of technical knowledge for proper setup and management. Users must understand how to distribute private key shares securely and manage the multi-signature process. This requirement can be a barrier for those who lack technical expertise or prefer simpler solutions.
  4. Limited adoption, with not all wallet providers offering MPC wallets: Despite their benefits, MPC wallets have not yet been widely adopted, and not all wallet providers offer them. This limited availability can make it challenging for users to find compatible solutions and may lead to a lack of support and resources for troubleshooting and maintenance.

MPC wallets vs. Multisig wallets: What’s the difference?

MPC wallets and multisig wallets both serve to enhance security and control over digital assets by involving multiple parties in transaction approvals. However, they are not the same thing, as they operate based on different underlying mechanisms.

Multi-Party Computation (MPC) wallets use a cryptographic technique where the private key is divided into multiple shares, with each share distributed among different parties. The key is never reconstructed in its entirety. Instead, the parties jointly perform computations required for transactions, such as signing, without revealing their individual key shares. This approach enhances security by eliminating a single point of failure.

Multisig (short for Multi-Signature) wallets, on the other hand, require multiple signatures from different parties to authorize transactions. A multisig wallet is typically set up with an "M-of-N" scheme, where M signatures out of N total participants are required to approve a transaction. The private keys are not divided in this case; instead, each participant has their own distinct private key.

So while both MPC and multisig wallets involve multiple parties in the transaction process, they differ in the way they handle private keys and transaction approvals. MPC wallets rely on splitting private keys into shares and performing joint computations, while multisig wallets require distinct private keys for each participant and a specified number of signatures for transaction approvals.

List of 8 top MPC wallets

There are many MPC wallet providers that users and developers can start using today, each with its own unique features. Some of the most popular examples include:

  1. Coinbase
  2. ZenGo
  3. Fireblocks
  4. Mirror World
  5. UniPass
  6. Marble Wallet
  7. Portal
  8. MPCVault

The choice of an MPC wallet depends on your specific needs and preferences, as each MPC wallet has its unique features and benefits. We recommend researching the different options and comparing their capabilities to determine which wallet aligns best with your goals and requirements.

Frequently Asked Questions (FAQs)

What type of wallet is an MPC Wallet?

An MPC Wallet is a type of smart contract wallet that leverages Multi-Party Computation to securely manage digital assets on the Ethereum blockchain.

Is MetaMask a MPC Wallet?

No, MetaMask is not an MPC wallet. It is a single-signature wallet that uses a single private key for transaction signing and asset management.

Is Coinbase Wallet a MPC Wallet?

No, Coinbase Wallet is not an MPC wallet. It is a single-signature wallet that focuses on providing a user-friendly experience for managing digital assets on various blockchains. Coinbase has recently launched their MPC wallet offering, however, which is separate from the Coinbase Wallet that most users know which is an externally-owned account, or EOA — meaning it is not a smart contract wallet.

Can an MPC wallet get hacked?

While an MPC wallet provides enhanced security compared to traditional single-signature wallets, no wallet is completely immune to hacking. However, the distributed nature of private keys in MPC wallets makes it significantly more challenging for attackers to gain unauthorized access.

What happens if one of the parties holding a share of the private key becomes unavailable?

MPC Wallets can be configured with different threshold schemes, allowing for a specific number of parties to sign a transaction successfully, even if some parties are unavailable. For example, a 3-of-5 scheme would require three out of five key shares to sign a transaction, providing a level of fault tolerance and ensuring that wallet access is maintained even if some parties are unreachable.

Can I switch from a single-signature wallet to an MPC wallet?

Yes, you can transition from a single-signature wallet to an MPC wallet. To do this, you would create a new MPC wallet and transfer your assets from your single-signature wallet to the new wallet. It is essential to follow best practices for securing your private key shares during this process to ensure the security of your assets.

Is it possible to recover lost private key shares in an MPC wallet?

In some cases, it may be possible to recover lost private key shares, depending on the wallet provider's specific implementation of MPC technology. Some providers offer key recovery services or allow for the regeneration of key shares using backup information, such as a recovery phrase. However, it is crucial to follow the wallet provider's guidelines and recommendations to minimize the risk of losing access to your assets.

Are MPC wallets EVM-compatible?

One significant advantage of MPC is its chain-agnostic nature. Unlike multi-signature (MultiSig) approaches, which may not support every blockchain, MPC can be applied to all EVM-compatible chains.

Concluding thoughts: Is MPC the future of Ethereum wallets?

An MPC wallet is a powerful type of smart contract wallet that provides enhanced security, flexibility, and control over digital assets on Ethereum & EVM-compatible blockchains. By leveraging MPC technology and smart contracts, MPC wallets enable secure collaboration and decision-making across various use cases.

We hope this blog post has helped you better understand what a MPC wallet is, how it compares to other smart contract wallet solutions such as Multisig wallets, and how to get started with MPC wallets.

If you have any questions, join 33,000+ other builders in our Discord community — or reach out to the team directly for more info on how to integrate MPC wallets into your web3 apps.

And if you want to start building web3 apps with integrated MPC wallets, get started with thirdweb’s web3 tools & SDKs — they’re free!