Tools & Resources

What is an MPC wallet?

By The Fire Team
3 hands assembling four puzzle pieces in pink, blue and yellow
TL;DR: Unlike traditional methods like seed phrases or cold wallets, MPC wallets divide the private keys into multiple parts, distributing them among different parties. This collaborative cryptographic approach ensures that keys are never in whole form, eliminating single points of failure. Compared to seed phrases, MPC offers benefits like reduced vulnerability and enhanced usability, particularly for those new to web3, DeFi, and NFTs. Despite debates regarding its decentralization, the balance struck by MPC between security and user experience marks a promising step forward, as demonstrated in applications like Fire Wallet.

What is an MPC Wallet?

Self-custody gives you the freedom to explore web3 and have true ownership over your assets. But it also means securing your keys and is paramount. 

Traditional methods of storing keys like cold wallets work, but have limitations and complexities: They require you to safeguard a seed phrase, which is difficult, especially to web3 newbies.

MPC wallets promise to make web3 wallets simpler and safer by removing single points of failure. But what is an MPC wallet, how does multi-party computation work and how does it compare to a seed phrase? Let’s explore!

What is Multi Party Computation (MPC)?

Multi Party Computation (MPC) is a subfield of cryptography that enables multiple parties to jointly compute a function over their inputs while keeping these inputs private from each other. 

In simpler terms, it's like several people collaboratively solving a puzzle without revealing their individual pieces. 

In the context of crypto wallets, this means that private keys (or parts of them) are never in a singular, whole form. They're split into multiple pieces and distributed among multiple parties. These parties then perform computations on their parts without ever reconstructing the original key.

That’s different from other ways of safeguarding a crypto wallet: When you use a cold wallet, your private keys are always stored on that device. That’s not the case for when you have an MPC wallet. 

How MPC Wallets Work

A multi-party computation wallet uses MPC instead of a seed phrase to keep your private keys safe. While you can dive deep into the details of MPC, it’s easy in practice: 

When you create an MPC wallet, you don’t have to type and safeguard a seed phrase, but instead store part of the key on the device you’re using. This enables you to log in with a single click on the device you’re using. 

MPC vs. Seed Phrases

In traditional crypto wallets, a private key is the master key to your funds. Anyone with access to this key can control, spend, and own the associated tokens. And because your seed phrase restores your private key, anyone who has the seed phrase has all of your assets. 

Seed phrases are advantageous because they’re human-readable and make it easy to import your wallet on a new wallet provider. But seed phrases have their drawbacks: 

  • Single Point of vulnerability: If someone gains access to your seed phrase, they can access your funds. Similarly, losing your seed phrase without a backup means your assets are gone forever.
  • Security concerns: If you store your seed phrase physically, it can get stolen or damaged. Storing your seed phrase digitally (e.g. in a notes app) can add even more vulnerability: A scammer only needs to gain access to that app and then gains access to all of your tokens. 

Seed phrases are tricky: They’re easier to store than a 64-character private key, but are clunky and difficult, especially to people who are new to web3, DeFi and NFTs. 

Benefits of MPC Crypto Wallets

Multi party computation promises to make web3 wallets easier in various ways. First is enhanced security: With MPC, even if an attacker compromises one party (or node), they cannot gain full access to your wallet. 

MPC wallets also reduce single points of failure: Traditional EOA wallets have a single point of failure. Anyone with your seed phrase has unlimited access to your digital assets across all EVM networks.

Previously, a way to keep certain funds extra secure was to create a multi-signature wallet. This required multiple signers to approve any transaction or token approval. While MPC doesn’t replicate the utility of multisig wallets, it uses a similar mechanism to keep private keys safe. Anyone who previously kept their funds safe by having multiple wallets sign on a multi-signature transaction might consider using an MPC wallet instead. 

Are MPC Wallets Decentralized?

Whenever you discuss a new technology in web3, decentralization becomes a talking point. There’s some debate around MPC and its merits for the overall ecosystem. The balance between decentralization, convenience/UX and security is an important one—and we believe MPC strikes a great balance. 

That’s why we use Capsule MPC to make signing in easy for Fire Wallet.

If you’re exploring Ethereum, check out Fire!

We’re a trusted chrome extension that simulates transactions before you sign any potentially malicious smart contract.
Check it out
To Summarize

In conclusion, MPC (Multi Party Computation) wallets offer a transformative approach to securing private keys in the crypto space. By dividing keys into parts and distributing them among multiple parties, they eliminate single points of failure and enhance security. This method contrasts sharply with traditional seed phrases, offering a more user-friendly and resilient solution, especially for newcomers to web3. The debate around decentralization remains, but MPC's balance of convenience, user experience, and security signals a promising future for this technology.

If you want to try out an MPC wallet after reading this article, try the Fire Wallet today!