The wallet revolution is timely, a multidimensional comparison of popular MPC wallets

Author: ChainUp

The track of digital currency wallets is becoming increasingly lively.

The rapid development of Web3 has created new demands for infrastructure and brought some hidden dangers, especially for blockchain wallets, which serve as a traffic entry point. They have long suffered from hacker attacks, private key losses, and other issues. People desperately need a more secure and user-friendly decentralized wallet. Driven by demand, many crypto companies have entered the field, striving to create crypto wallet products that are more in line with development trends and can be adopted on a large scale, thus marking the beginning of the Wallet 2.0 era.

Among the many innovations, MPC wallets and smart contract wallets are the new generation wallets that deserve the most attention, as both focus on solving the problem of private key management.

Due to its advantages in compatibility, privacy, and cost of use, the MPC wallet, as an off-chain solution, is easier to implement in the short term, making it a popular option in the wallet competition. Not only have consumer-facing MPC wallet products like UniPass and ZenGo emerged, but also industry veterans like ChainUp Custody have applied it in digital currency custody services.

Why is there high hope for MPC wallets? What advantages do they have compared to traditional wallets? What players are in this track, and what are their characteristics? In the following text, we will combine the concept of MPC wallets with practical products to attempt to restore the changes from Wallet 1.0 to 2.0 and see how the new generation of wallets will enhance industry development.

1. Keyless MPC Wallets

1. What is an MPC Wallet?

MPC, or "Multi-Party Computation," is a cryptographic technology that originated in 1982. It refers to multiple parties collaborating to achieve a computational goal without a trusted third party, where each party only knows its own computation result and cannot obtain any information from other parties.

The combination of MPC technology and digital currency wallets can achieve the goal of "removing mnemonic phrases/private keys."

When creating an MPC wallet, it does not generate a complete private key but instead shatters the private key and distributes it to decentralized holders or platforms (each holder only has a fragment of the private key and does not know the parts held by others). When a transaction requires a private key signature, the fragments are pieced together for signing. This distributed private key approach alleviates concerns about private key custody; even if a user's private key is stolen, hackers cannot control the assets in the wallet.

2. Advantages of MPC Wallets

(MPC Wallets vs. Traditional Crypto Wallets)

With the development of cryptocurrencies, the wallet track has been evolving. Compared to first-generation traditional crypto wallets like Metamask, second-generation wallets like MPC wallets exhibit the following advantages:

First, removing mnemonic phrases lowers the entry barrier for MPC wallets.

Traditional crypto wallets have always had high cognitive requirements for users. Users not only need to understand the meanings and uses of terms like mnemonic phrases and private keys but also spend considerable time and effort learning how to safeguard their private keys.

Imagine a future where an internet user enters the Web3 space for the first time; they do not need to understand what a private key is, nor do they need to write down mnemonic phrases on paper and worry all day about whether they have been stored safely. They only need to use their email, Face ID, or fingerprint to create and use a digital currency wallet, seamlessly navigating the Web3 world.

MPC is making this scenario a reality, transforming "roadblocks" like private keys and mnemonic phrases into a thing of the past. People can connect to Web3 using familiar internet interaction forms without any hassle, significantly lowering the entry barrier, which is why MPC wallets are gradually becoming popular.

Second, eliminating single points of failure increases the security of MPC wallets.

It is well known that traditional crypto wallets use a single private key, and once it is stolen or lost, the assets in the wallet disappear. Due to its unique creation method, the MPC solution directly eliminates the single point of failure problem of traditional wallets.

MPC wallets have a private key recovery feature—when a user's private key is lost, the MPC wallet can often directly recover or replace the private key fragments, allowing users to retain their original wallet while restoring its security. Moreover, if a user's private key is stolen or the wallet is subjected to phishing attacks, hackers cannot directly transfer assets; they need to control other private key fragments simultaneously to do so. At this point, users can update their private key fragments, rendering the old private key immediately invalid.

MPC technology significantly increases the difficulty of wallet theft, enhancing wallet security. People no longer worry about losing mnemonic phrases or private keys as they did in the past, and they do not have to bear excessive psychological pressure during interactions and operations, nor do they have to endure the nightmare of losing assets immediately upon losing their private keys.

Additionally, for enterprise users, since complete private keys do not exist on any device, it not only avoids theft risks but also eliminates the possibility of internal employees abusing private keys or stealing digital currencies. For this reason, not only ordinary retail investors but also an increasing number of enterprise users are transitioning from traditional wallets to MPC wallets.

Third, meeting complex requirements, MPC wallets solve the self-custody asset management dilemma.

Insiders often say, "Not your keys, not your crypto." After the FTX incident, exchanges are no longer the primary choice for users to manage assets. People have realized that crypto wallets are the best solution for managing digital currencies.
The ensuing problem is that while users have control over their assets, they have extremely high requirements for personal private key management capabilities. Traditional crypto wallets often face risks such as private key theft, social engineering attacks, and phishing when interacting with the physical world. Hardware wallets can mitigate security issues during the self-management process to some extent, but their complexity makes them difficult to use in high-frequency scenarios.

The emergence of MPC wallets perfectly solves the self-custody dilemma: they ensure that users hold their private keys while eliminating the management issues (custody, backup, recovery) associated with private keys, simultaneously enhancing the security of asset self-management. Users can manage and use assets without being restricted by time and location. Moreover, due to adjustable signing schemes and the need not to change account addresses, MPC wallets can better meet the diverse and complex asset management needs of enterprise users.

Given these undeniable advantages, MPC wallet solutions are now commonly used by digital currency funds, family offices, exchanges, custodians, and various DAOs. It is believed that this solution will also gain wider adoption among ordinary users in the near future.

Next, we will select several representative players in this track, understand their respective characteristics, conduct a multi-dimensional comparison, analyze their similarities and differences, and provide valuable references for everyone when selecting digital currency wallets.

2. Comparison of Popular MPC Wallets

1. Introduction

We have selected four well-known and established companies in the industry, including Fireblocks, ChainUp Custody, Copper, and BitGo. These companies all provide digital currency custody services and have launched MPC wallet solutions in recent years. Here is a brief introduction to them:

2. Multi-dimensional Comparison

Although they are all MPC wallets, they have some differences in product positioning, login methods, custody mechanisms, and private key recovery. The following chart summarizes the similarities and differences among these products:

In terms of service groups, Fireblocks is an MPC technology provider primarily offering customized MPC wallet services for dApp developers; ChainUp Custody and BitGo target enterprise users, such as exchanges, funds, mining pools, and Web3 companies; Copper mainly serves institutional investors, such as asset managers, private banks, and family businesses.

Due to the different service groups, the main operating platforms for these wallets also vary. Fireblocks' MPC wallet primarily operates on the web, while ChainUp Custody and Copper provide mobile apps, allowing users to operate anytime and anywhere, making this mobile management approach more convenient.

In terms of custody models, there are self-custody and hybrid custody categories, differentiated by control over private keys. In self-custody mode, users manage their own private keys, while in hybrid custody mode, the platform and users jointly manage them. Currently, most MPC wallets adopt a hybrid custody model:

• Fireblocks: 3 private key fragments, with 1 held by the user and the other 2 backed up by Fireblocks to Microsoft Cloud and IBM Cloud.
• ChainUp Custody: 3 private key fragments, with 1 held by the user and the other 2 stored by ChainUp on HSM servers at Amazon Cloud and Microsoft Cloud.
• Copper: 3 private key fragments, with 1 held by the user, 1 held by Copper, and 1 stored with a trusted third party.
• BitGo: 3 private key fragments, with 1 held by the user, 1 held by a custodian (which can be the user or a key recovery service provider), and 1 held by BitGo.

In terms of signing mechanisms, Fireblocks uses a 3/3 signing mechanism, meaning that when a user triggers a request, all private key fragments must participate in the signing; ChainUp Custody, Copper, and BitGo use a 2/3 signing mechanism, where 2 out of the 3 private key holders authorize the signing, allowing for more flexible handling.

In terms of disaster recovery mechanisms, i.e., private key recovery mechanisms, each company has provided different solutions:

• Fireblocks: If an administrator changes devices, they need to contact the platform and undergo identity verification via video conference to recover the private key fragment.
• ChainUp Custody: Private key fragments are strongly bound to accounts. When users change devices, they can log into their account on the new device and import the mnemonic phrase corresponding to the private key fragment for recovery; alternatively, the backed-up private key fragment can be automatically downloaded to the new device (the recovered private key fragment is encrypted and requires a password to unlock).

• Copper: Currently does not provide a clear private key recovery solution.
• BitGo: Users can recover assets themselves using the wallet recovery wizard software, but to use this software, they must have backup public keys, BitGo public keys, wallet passwords, and other information.

In terms of supported public chains and currencies, Fireblocks supports over 50 public chains, ChainUp Custody currently supports 23 public chains and is continuously adding more public chain assets. The actual asset support situation for Copper and BitGo MPC wallets is unknown.

Based on the above information, we can summarize:

In product design, ChainUp Custody places more emphasis on convenience and user experience; in signing mechanisms, ChainUp Custody, Copper, and BitGo can better balance security and convenience; in private key recovery, ChainUp Custody, Fireblocks, and BitGo all provide disaster recovery solutions, with Fireblocks having a more complex recovery process and ChainUp Custody offering the most flexible recovery process; in terms of supported assets, Fireblocks and ChainUp Custody can meet the asset needs of most mainstream public chains, enabling more efficient on-chain interactions within the wallet.

3. MPC Wallets, A Promising Future

Compared to the rapid developments in DeFi, NFTs, public chains, and GameFi, innovations in the wallet sector seem exceptionally slow—the "private key + mnemonic phrase" wallet management combination has seen almost no new changes in the past decade.

On one hand, users outside the crypto space are often deterred by complex terminology, making large-scale adoption of Web3 a distant prospect; on the other hand, users within the space have long suffered from private key risks. Reports indicate that private key leaks and losses are the leading causes of security incidents in the blockchain ecosystem, involving even technically sophisticated project parties, exchanges, and market makers.

In the face of these issues, MPC wallets present an excellent solution, with more and more individuals and enterprises considering them as the primary choice for asset self-management and collaborative vault management.

MPC wallets can eliminate single points of failure, combining flexibility and security. More importantly, they diminish the concepts of private keys and mnemonic phrases, allowing users to create wallets using common Web2 account systems like email and Face ID, lowering the entry barrier and making Web3 more accessible, thereby encouraging more retail and institutional participation in the digital currency market. Due to these advantages, many industry insiders regard MPC wallets as the "holy grail of usability and private key security."

Currently, competition in the MPC wallet track is becoming increasingly fierce, with more exchanges, wallet service providers, and custodians joining the fray, refining products that adapt to different scenarios and meet various needs, collectively promoting the development of the Wallet 2.0 era. We look forward to a market rebound, where these Web3 traffic entry points can also experience explosive growth.