What is an MPC Wallet? The Ultimate Guide to MPC Wallets

| November 17, 2023

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MPC Wallet

An MPC wallet is a digital wallet that uses multi-party computation technology to deliver reliable security. It keeps your private keys safe while offering shared access to individuals, groups, companies, financial institutions, and government organizations that actively manage digital assets.  

MPC wallets are a new and strong way to secure cryptocurrency. They’re not the first institutional-grade wallets that let multiple cryptocurrency owners control digital assets together. There are also other wallets like Multisig wallets. But before discussing the pros and cons of using an MPC wallet, let’s understand what differentiates them from Multisig technology. 

Key Takeaways

  • MPC allows multiple wallet holders – each holding their own asset data – to perform a computation without revealing any of the asset data held by each owner.

How does an MPC wallet work?

An MPC wallet uses a multi-party computation to keep your digital assets safe. The private keys are split into parts and given to different wallet owners or servers. This makes it hard for any owner or server to know the whole key. 

Such types of digital asset wallets keep your crypto-holdings super safe because no single person or server has all the power or authority to sign a transaction. Suppose you want to transfer cryptocurrencies to a decentralized crypto exchange in India. How would you do it with a digital asset management platform such as MPC? To execute crypto transactions, the wallet owners or servers are required to work together to give their parts of the signature without putting it all together. This way, your assets remain safe throughout the transaction process.

Imagine you’re playing a game with a friend, and you both have puzzle pieces. To unlock something, you need to put all your pieces together. But the amazing thing is, even if someone tries to steal your pieces or your friend’s pieces, they still can’t open the thing because they don’t have all the parts. So, your cryptocurrency is like that safe thing, and only when you and your friend work together can you open it and access it further.

History and Applications of MPC

Back in the 1980s, a new way of doing cryptography called MPC (multi-party computation) was invented. Before that, people used basic cryptography to hide information, but this MPC technology is about hiding some of the information while computing the rest of the data gathered from different sources. 

Here are the key moments in MPC’s history:

  • 1982 – Introduction of secure two-party computation to solve the Millionaire’s Problem. 
  • 1986 – Andrew Yao adapts two-party computation. 
  • 1987 – Goldreich, Micali and Wigderson adapt the two-party case to multi-party.  
  • 1990 – The study of MPC helped advance the field of universal composability, which in return made mobile devices safe. 
  • 2008 – In Denmark, MPC wallet computation technology was used for a big auction, showing it works in real life. 
  • 2010 – Digital asset custodians started using MPC to keep cryptocurrency safe. 
  • 2019 – Automatic key-refreshing MPC algorithm offered a new way to improve MPC.

Now, MPC is used for many things, like electronic voting, data mining, keeping digital assets safe and trading them with the decentralized crypto exchange in India. It’s really popular for making sure important things stay safe while still being easy to use.

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

Group wallets for organizations, DAOs, and companies:

MPC wallets are great for teams like groups, companies, and projects. They help these groups work together safely. Multiple owners and investors can manage the digital asset wallet and agree on what to do with the respective asset. This is really helpful for groups that want to keep their cryptocurrency safe and work together well.

Escrow services:

MPC wallets can help with risk-free escrow services. This means that when wallet owners want to exchange crypto-assets, the transaction only happens when everyone agrees and the conditions are met.

Multi-user MPC-based Hardware wallets for investment clubs or consortiums:

MPC wallets let groups of investors work together on their investments. They can make decisions as a team and only do transactions when everyone agrees.

Secure key management for crypto-exchanges and digital asset custody services:

Both centralized and decentralized exchanges, including custodial services, can use MPC Wallets, especially cold storage, to make fund storage more secure. This way, the private keys are split up and not easily broken into by just one thing going wrong.

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

Just like an MPC wallet, a multisignature wallet needs more than one person to agree before doing a transaction. It’s like a rule that says, “At least this many people have to say yes before we can do anything with the digital asset.” This makes it safer because if one person does something that is not permitted by the rest of the owners, it won’t ruin everything. Both Multisignature wallets and MPC wallets are in some ways, but there are a few things that make them different:

Blockchain Protocol Agnosticism

Not all blockchains work with multisignature wallets since they’re a unique kind and new – which is why single-signature wallets exist as their alternative. But MPC wallets are different and protocol agnostic. They can work with various Web3 blockchain protocols that use the ECDSA method of signing transactions.

Identity and Privacy

Let’s consider a Digital Asset Insurance and custodian company that manages and keeps a wide range of cryptocurrencies safe. They might use a multi-signature wallet to hold and manage the funds securely. This type of wallet has some good points, like showing who agreed to a transaction – but it also reveals the holders’ identity.  

On the other hand, MPC wallets work towards increasing privacy for users. Since the signing transaction phase takes place off-chain, it becomes harder for anyone to identify the owner’s identity uniquely. This keeps keys and identity secret and is safer for everyone using the wallet.

Transaction Costs

Using multisignature wallets means transactions need more than one signature. This makes the transactions bigger and more expensive because you have to pay more to process them.   

But with MPC wallets, transactions only need one signature, which makes them cheaper. The work of putting signatures together happens off Chain. This makes the transactions cost less to process.

Administrative Overhead

For instance, with a multisignature wallet, if you want to change how many co-owner need to agree for a transaction, it involves multiple steps: You’d have to create a new wallet. The rules you set for the multisignature wallet at the beginning stay forever. Then, you’d need to move the cryptocurrency from the old wallet to the new one. Finally, you’d have to tell others about the new wallet address because any money sent to the old one might be lost. 

But with MPC wallets, if someone needs to stop using their special code, the rest of the group can agree to change things without making a new wallet or moving the digital asset. The address stays the same, and the cryptocurrency stays safe in one place.

What are the benefits of MPC wallets?

Decentralization

With MPC non-custodial crypto wallets, you don’t need to rely on any trusted third party to keep or use the private keys. These keys are split among the different people in the group. This makes it harder for any one person to have too much control. So, there’s less chance of problems caused due to centralization, corruption or collusion – preventing the loss of digital assets.

Data Privacy

MPC wallets also keep your personal information safe. They don’t share your private information with others in the group or a third-party service provider. This means nobody can access or tamper with your personal information without you knowing and saying it’s okay.

High Accuracy

MPC wallets are really good at computing with the highest degree of accuracy. They can perform complex functionalities like generating addresses, signing transactions, and verifying signatures without errors.

Removes Single Points of Failure

MPC wallets get rid of a single point of failure that some other wallets have, such as single-signature wallets and Hot storage platforms. Numerous wallets have problems with key mismanagement, user privacy risk, private key theft, hardware device malfunction, including cyber threats. But MPC wallets avoid these issues. MPC technology does this by breaking the private keys into parts and giving them to different owners. This makes it hard for attacks and key mismanagement to happen all at once – which is why, sometimes, it is referred to as the best digital asset wallet by experts.

Scalability

MPC wallets can grow easily. You can add or remove crypto owners from the group without causing problems. This lets you choose how safe and fast you want things to be. If you want to be extra safe, you can invite more people to join.

Flexibility

MPC wallets are really flexible. They let you make rules for how your digital money works. You can say things like “only if it’s a certain amount” or “only a certain number of times.” You can also change these rules whenever you want. You can even plan for emergencies in case someone can’t help anymore or the parties are unavailable. This way, your digital assets are in your control. 

Which web3 wallets use MPC? List of top 8

Right now, there are lots of MPC wallet options you can use. Each one has its own upside. Some of the famous ones are:

  • Coinbase
  • ZenGo
  • FireBlocks
  • Mirror World
  • UniPass
  • Marble Wallet
  • Portal
  • MPCVault

Which MPC wallet is best?

The best MPC digital wallet for you will differ based on your requirements. Which one you should pick depends on what you want. Every wallet does something a bit differently. You should go through all of the available options and see which one fits what you need and like the most. 

Frequently Asked Questions (FAQs) 

What type of wallet is an MPC Wallet? 

Multi-part computation wallets, or MPC wallets, are cryptographic tools that employ cryptographic data from multiple parties owning multiple hardware devices to perform calculations using their combined data points without revealing their individual input. 

Is MetaMask a MPC Wallet? 

No, MetaMask is not an MPC wallet. 

Is Coinbase Wallet a MPC Wallet? 

Coinbase made a wallet called Coinbase Wallet in 2017, where you can keep your own crypto-assets, such as Bitcoin, safe. After looking at how people use it, they decided to make web3 wallets with MPC. These new wallets are easier to use and more secure. 

Can an MPC wallet get hacked? 

MPC wallets employ multi-Party Computation technology to split private keys into two parts. One is on your device, and the other is on a separate server. Even if one place is attacked, the wallet stays safe. The attacker can’t get in because they need both parts of the secret. It is one of the best digital wallets because it can’t be easily hacked. 

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

MPC wallets can be set up with various rules. These rules say how many people need to agree for a transaction to work, even if some can’t be there. 

Are MPC wallets EVM-compatible? 

MPC wallets are chain-agnostic and support all types of EVM-compatible Blockchains.  

How do MPC wallets work? 

MPC works by dividing wallet private keys into parts and putting them in different device locations. This ensures that no one person can have all the power of the wallet’s private key. The big benefit is that different individuals and groups working together always use this private key. 

What does the MPC wallet stand for? 

MPC stands for Multi-Party Computation. This wallet offers a great alternative to traditional storage methods. 

What does MPC stand for Blockchain? 

MPC, also referred to as secure computation or secure multi-party computation, is a subfield within cryptography that aims to create technology for teams to compute a function based on the given input collaboratively, but without letting others know what that input is.

What is the difference between an MPC wallet and a smart contract wallet? 

Everyone knows all the input used in smart contracts. But with MPC, each person only knows their own input. Because of this, in MPC wallets, people have to follow a set of steps together, while in smart contracts, each person can conduct their execution without waiting for others.

What are the cons of an MPC wallet? 

MPC wallets are a bit more complicated than regular single-signature wallets, which is not true with Multisig technology. Also, there aren’t many MPC wallet choices yet because this technology is still relatively new and growing.

 

More on Crypto

As we continue constructing a fully regulated digital asset custody platform, ensuring secure storage for both crypto and fiat assets remains a critical priority. 

To facilitate the last checkpoint of enabling institutions to convert their digital asset treasury into fiat currency, we’re expanding beyond pure wallet infrastructure and integrating seamless fiat off-ramp capabilities for our partners.

We’re thrilled to announce our partnership with Encryptus, licensed and compliant off-ramp solutions tailored for institutional clients. This collaboration elevates Liminal’s service offerings by empowering our partners to convert their digital asset treasuries into fiat currencies efficiently.

Integrating A Seamless Off-Ramp Solution

The digital asset ecosystem historically faced friction points when transitioning between fiat and cryptocurrencies. Off-ramp solutions address this pain point by enabling efficient and streamlined conversion between asset classes, minimising value loss and simplifying compliance processes.

Here’s how off-ramp changes the game:

  • Reduced Friction: Frictionless conversion minimises delays and operational complexities associated with traditional fiat-crypto exchange methods.
  • Enhanced Efficiency: Streamlined workflows expedite asset conversion, increasing speed and cost-effectiveness for institutional and individual users.
  • Optimised Value Preservation: Advanced off-ramp solutions prioritise minimising price slippage and value loss during conversion, protecting user portfolios.
  • Simplified Compliance: Integrated compliance features navigate regulatory complexities, ensuring adherence to relevant financial regulations.

With our partnership with Encryptus, we have embedded their institutional-grade APIs, connecting their off-ramp solution within Liminal’s wallet and custody platform. 

This integration simplifies our clients’ liquidation requirements while keeping their assets secure and more:

  • Effortless Digital Asset to Fiat Conversion: Our partners will be able to access treasury management and facilitate business payments in 54 countries and individual payments in an extensive network of 80+ countries.
  • Streamlined Compliance and Regulation: Our partners will be able to leverage Encryptus’s rigorous licensing and compliance framework, ensuring adherence to stringent financial regulations.
  • Enhanced Platform Value: We will be able to expand the functionality of the Liminal custody solution, attracting institutional users seeking comprehensive digital asset management capabilities.

Moving Towards A Robust Off-Ramp Partnership With Encryptus

The partnership between Liminal and Encryptus earmarks a significant step forward in secure digital asset custody, representing a shared commitment to pushing compliant practices while supplying institutions with easy access to convert their digital assets to fiat. 

For Encryptus, the opportunity to integrate with Liminal’s established platform presents a chance to reach a wider audience and scale their innovative off-ramp solutions to new heights. By streamlining fiat conversion within Liminal’s secure custody infrastructure, Encryptus gains access to a trusted network of institutional users seeking seamless and compliant treasury management.

For Liminal, this collaboration reinforces our dedication to partnering with companies that demonstrably prioritise clear governance and robust policy frameworks. By aligning with Encryptus’s stringent compliance standards, we reaffirm our commitment to building a secure and sustainable future for digital assets, where trust and regulatory certainty go hand-in-hand.

January 22, 2024

Hello world, it’s that time of the month when we share the biggest security breaches in the world of Web3 through our Security and Regulatory Newsletter. 

Liminal believes in optimizing security and custody practices globally across the Web3 industry. Through our Newsletter, we highlight security, regulations, and compliance incidents that have happened in the past month and how one can follow better Security practices to safeguard their digital assets. 

We will also highlight regulatory changes that might have happened globally, which were significant to the overall ecosystem.

Dive in and get a detailed analysis of everything security and regulation in the domain of web3 with Liminal’s Monthly Security and Regulatory Newsletter.

Web3 Security Compromises in January

Abracadabra exploited for almost $6.5 million, Magic Internet Money stablecoin depegs

The Magic Internet Money ($MIM) stablecoin has lost its dollar peg again, dipping all the way below $0.77 in a flash crash before returning to around $0.95.

The depeg appears to be related to an exploit of the Abracadabra lending protocol, which allows people to borrow $MIM. An attacker exploited an apparent flaw in the platform’s smart contracts to drain around $6.5 million.

Goledo Finance hacked for $1.7 million

Goledo Finance, an Aave-based lending protocol, was exploited through a flash loan attack. The attacker stole assets estimated by CertiK to be around $1.7 million.

Goledo Finance contacted the attacker to offer a 10% “bounty” for the return of the remaining assets. In a message on January 29, the attacker wrote: “I hacked Goledo and want to negotiate.”

Socket service and its Bungee bridge suffer $3.3 million theft

The Socket cross-chain infrastructure protocol was hacked for around $3.3 million in an attack that exploited its Bungee bridge. The thieves were able to exploit a bug that allowed them to take assets from those who had approved a portion of the system called SocketGateway.

A little over 700 victims were affected, and the highest loss from a single wallet was around $657,000. 121 wallets lost assets priced at more than $10,000.

On January 23, the protocol announced they had recovered 1,032 ETH (~$2.23 million) of the stolen funds.

Web3 Regulatory Practices for January

The EU Imposes Stricter Due Diligence Rules for Crypto Firms

On Jan. 17, the European Council and the Parliament came to a provisional agreement on parts of the Anti-Money Laundering Regulation (AMLR) that now extends to the crypto sector.

Under the new rules, cryptocurrency firms will be required to run due diligence on their customers involving a transaction amounting to €1,000 ($1,090) or more. 

However, the agreement isn’t final yet as it has to be first officially adopted by the Council and Parliament before the rules can be applied.

So, after the EU passed its landmark MiCA regulation last year, which clarified rules about cryptocurrencies, regulators are now targeting the space with tighter controls. 

While these regulations bolster security and trust in the crypto market, potentially attracting more cautious investors and combating financial crimes, they also present challenges. 

The US State of Virginia Introduces Digital Assets Mining Rights

Recently, the Virginia State Senate introduced Bill No. 339, which outlines regulations for the transactions and mining of digital assets and their treatment under tax laws. 

The legislation exempts individuals and businesses engaged in crypto mining activities from obtaining money transmitter licenses. Additionally, it protects miners from any discrimination. 

Issuers and sellers of crypto are also exempted from securities registration requirements if certain conditions are met. Moreover, those offering mining or staking services are not to be classified as “financial investment” but must file a notice to qualify for the exemption.

The bill further incentivizes crypto’s use for everyday transactions by offering tax benefits. Under this, up to $200 per transaction can be excluded from an individual’s net capital gains or gains derived from using crypto to purchase goods or services, starting from Jan. 1, 2024.

Key Takeaways:

  • Hackers continue to exploit vulnerabilities in DeFi protocols and cross-chain bridges, highlighting the need for robust security measures.
  • Regulatory frameworks are evolving rapidly, with stricter AML rules and supportive legislation for emerging technologies like crypto mining.
  • Staying informed about these developments is crucial for navigating the digital assets market safely and responsibly.

Stay #LiminalSecure

These events highlight the constant evolution of Web3 security and regulation. You can confidently navigate this dynamic landscape by staying informed and prioritizing security best practices. 

At Liminal, we’re committed to empowering institutions to unlock the full potential of digital assets without compromising security or compliance norms with our robust custody and wallet infrastructure solutions. Join us on this journey towards a safer, more accessible future for digital assets.

January 15, 2024

Buckle up as we’re about to take a trip down memory lane. 

The year 2023 was a wild ride that showed signs of a plummeting market, groundbreaking innovation and regulatory hurdles. 

Contrastingly, in the same year, we saw no market-shattering crashes. Financial institutions extending an olive branch, key jurisdictions unlocking the doors to blockchain technology. 

Simultaneously, at Liminal, we experienced significant breakthroughs, re-engineering our positioning and becoming a pioneer in digital asset security with bank-grade custody. 

We took major strides this year, right from building comprehensive products to becoming a qualified custodian, from revamping our brand design to expanding our offices in newer locations, from partnering with hyper-local communities to onboarding a diverse set of clients,  we did it all. 

So, let us take you through everything we accomplished in 2023 and what the future holds.  

Liminal Became A Qualified Custodian

One of the prominent moves we made this year was to change our positioning as a regulated custodian from being a wallet infrastructure platform. 

We got two licenses in key jurisdictions to operate as a regulated custodian. 

The first one came from Hong Kong, where we acquired the TCSP license issued by the SFC, which oversees and regulates financial activities to ensure compliance with legal and regulatory obligations. 

Our next license came in the MENA region, where we got In-Principle Approval for the FSP license granted by the FSRA, a governing body in ADGM, to establish a progressive financial services environment. 

Both these licenses paved the way for Liminal to push its wallet infrastructure and offer bank-grade custody to institutions looking to operate in these particular regions. 

Liminal Introduced A Suite of Products & Features

Continuing our building spree, we launched new products and integrations to broaden the existing infrastructure and added more parameters of security, scalability and sustainability. 

Staking-as-a-Service

Liminal launched staking for institutions to eliminate the risks involved in running staking nodes and the vulnerabilities in hot wallet transfer. 

Hence, we introduced an industry-first mechanism of cold wallet staking to ease staking for institutions and secure assets explicitly.  

Whitelabel Solution

Accelerating the go-to-market time for organisations looking to build a secure and customisable application, Liminal launched its whitelabel solutions

Targeted to help organisations meet security standards, manage assets with maximum control, and add their custom branding to give it a personal touch. Our whitelabel solution is a first-in-class custodian-developed solution for institutional grade custody.

Smart Consolidation

We are building not just secure custody but also automation-based features to eliminate manual errors, increase the throughput of transactions and scale institutional wallets. 

Taking this ahead, we launched the Smart Consolidation feature to automatically calculate all the active addresses and consolidate them into a single address. With this level of automation, managing multiple addresses becomes uber easy for wallet teams. 

Travel Rule 

To limit the use of cryptocurrencies for activities like money laundering and terror financing by regulatory bodies, travel rule was mandated for institutions to follow. 

Continuing the latest compliance integration policy, Liminal partnered with Notabene to introduce Travel Rule, enabling institutions to manage counter-party risk and extend the process of due diligence right from the Vaults dashboard.   

Liminal Accured List Of Security Certifications

Following our ISO certification for data privacy and risk management, we added two new security certifications to fortify our systems and build trust for our clients. 

Liminal Achieves Crypto’s Highest Security Mark: CCSS Level-3 Certified

Cryptocurrency security lacked a gold standard, creating a vulnerable ecosystem. Enter the CryptoCurrency Security Standard (CCSS), setting the bar for auditing and certifying custodian infrastructure and establishing levels of trust and confidence for investors. 

Liminal became only the second wallet infra platform and the first regulated custodian to be accredited with Level-3 certification, deeming wallets, transfer environments, workflows and engines safe and secure. 

Liminal Reciueved SOC 2 Type II Certification

To tackle threats in institutional-grade security, organisations’ SOC has been identified as the primitive compliance standard for service organisations to handle customer data.

Liminal successfully attained SOC 2 Type II certification, validating its setup of security controls & compliance processes to be industry standard. 

Liminal Level Up

Liminal unveiled its most significant platform upgrade ever, revolutionising the future design standard of a qualified custodian. This level-up activity included revamping our website and product UI, giving a completely new look and feel to not “Liminal” but “Liminal Custody”. 

The Liminal level-up activity was a strategic step and the biggest one for us this year to create an intuitive, inviting and tailored experience for our clients. 

Liminal Reached New Borders

We spread out our operations this year, reaching new borders and onboarding a new wave of institutions across gaming, DeFi, HNI wealth, treasuries, and exchanges! From Indonesia and Africa to India, UAE, and Korea, we are setting up custody operations worldwide. 

This isn’t just a roster of clients; it’s a network ready to spark connections, collaborations, and shared success to further the definition of secure assets. 

Liminal Collaborated With Law Enforcement Agencies

The best and the proudest moment of Liminal for this year was when we collaborated with CBI & Himachal Prashesh police department to aid them in seizing digital assets. 

This partnership put us on the map, as we became the first point of contact for LEAs in India, and we standardised the process of secure seizure of digital assets. Leveraging our expertise, we enabled a safe space for officers to learn the basics of custody, contributing to a safer digital landscape.

Team Liminal Grew Bigger

Building such a massive infrastructure, prioritising security and compliance over everything else, we had to grow the team to build at pace and expand at an even higher level. Not only did we grow in team numbers, but we also elongated our footprint to new destinations. 

Team Liminal went from 32 to 70 with 5 new offices in Mumbai, Ahmedabad, Hong Kong, Singapore and ADGM, setting up our custody operations steadfastly. 

What’s To Look Out For In 2024

We are excited to announce that our commitment to integrating the most secure digital asset wallets with a cutting-edge custody platform is swiftly becoming a reality. 

The upcoming year, 2024, will serve as a testament to this transformative journey. Moving beyond self-custody, we are constructing a comprehensive infrastructure encompassing both custodial and non-custodial wallets. Exciting products are set to launch starting from the first week of January, some of which are: 

  • Official Custody Platform Launch
  • Liminal’s Off-Exchange Settlement Hub
  • Secure Custody of Real-World ‘Tokenised’ Asset

The Web3 space has evolved explicitly this year, pushing the narrative of secure digital asset custody and security, introducing new regulations and compliance standards, licensing VASP providers and standardising the use of custodians as a trusted third party. 

At Liminal, we took major strides this year, from building comprehensive products to becoming a regulated custodian, from revamping our brand design to building the full infrastructure of custodial and non-custodial wallets.

January 5, 2024

Find Out How You Can Benefit From A Fully Self-Custodial Wallet Architecture