ACCOUNT ABSTRACTION

September 9, 2023

Crypto Wallets 101: Multi Party Computation (MPC) Wallet Vs Smart Contract Wallet

🔒Confused about MPC & Smart Contract wallets? 🔍Learn about their differences, strengths, & drawbacks in our latest article!💡

When it comes to securing cryptocurrency assets, there are two popular types of wallets that you can use: MPC (multi-party computation) wallets and smart contract wallets. Both types of wallets have their own unique features and benefits, as well as drawbacks. In this article, we’ll explore the differences, advantages, and disadvantages of MPC wallets and smart contract wallets to help you make an informed decision about which type of wallet is right for you.

MPC Wallets

MPC wallets, also known as threshold wallets, are a type of cryptocurrency wallet that uses multi-party computation to secure private keys. In an MPC wallet, multiple parties jointly create and hold parts of the private key, without ever revealing the full key to any one person or party. This means that the key is never stored in one place, making it more difficult for hackers to access it.

MPC Wallets: Strengths

▪ Absence of a single point of failure since the entire private key is never concentrated on a single device, and no seed phrase is required.


▪ MPC wallets also feature adjustable signing schemes, allowing approval quorums to be modified as individual and organizational needs evolve, while maintaining the same address.


▪ Institutional users can assign an unlimited number of transaction approvers to a policy and delegate permissions that reflect organizational roles and security measures with granular access control.


▪ MPC wallets offer lower transaction and recovery costs, represented on the blockchain as a single address, and recovery of lost key shares can be conducted off-chain. Key generation and signing rely on pure cryptography off-chain, making it blockchain agnostic and straightforward to extend compatibility to new blockchains.

MPC Wallets: Drawbacks

However, MPC wallets have some drawbacks, such as:


▪ Off-chain accountability, where signing authorization policies and approval quorums are managed off-chain, making custom rules still subject to centralized failures.


▪ MPC wallets are incompatible with most conventional wallets like Ledger and Trezor since there is no seed phrase or whole private keys stored on a single device, but MPC hardware wallet options are available.


▪ MPC algorithms are not standardized, and custom implementations are not natively supported by institution-grade secure devices like iPhone SEP and HSMs.


▪ Most MPC libraries and solutions are also siloed, bespoke products, making it challenging for the ecosystem to independently audit and integrate them and conduct post-mortems if something goes wrong.

Smart Contract Wallets

Smart contract wallets are a type of account in Ethereum that are controlled by code rather than private keys. In addition to externally owned accounts (EOAs), smart contract accounts serve as an interface that enables users to manage their funds, sign in with web3, and interact with dapps. However, unlike private key wallets, smart contract wallets require an initial cost to create, as a smart contract needs to be deployed on-chain.

Smart Contract Wallets: Strengths

▪ Smart contract wallets offer several advantages, such as the absence of a single point of failure, as multiple signatures are needed to execute a transaction.


▪ Smart wallets also feature programmable access control, allowing users to define different policies, set timelocks, spending limits, and automations like harvesting farming rewards and limit orders.


▪ Transaction batching can be implemented to save costs, and smart wallets are extensible thanks to the composability of smart contracts, enabling developers to create an ecosystem of modules for new features like NFT lending frameworks, DAO voting modules, and non-custodial asset management services.


▪ Smart wallets also enable programmable recovery options, such as social recovery, deadman switches, or a hybrid approach, and offer on-chain accountability for transactions.


▪ They also allow migration to alternative signature schemes and are open source, enabling auditing by anyone.

Smart Contract Wallets: Drawbacks

▪ However, smart contract wallets have some drawbacks, such as higher fees than regular, single address transactions, as multiple signatures need to be verified.


▪ Smart wallets are not universally supported and need bespoke implementation on non-EVM chains.


▪ Recovery logic is programmable but requires on-chain fees to execute, making it more expensive to recover. Additionally, they are incompatible with non-upgradeable contracts, and while EIP-1271 allows applications to sign on behalf of contract wallets, it is still not universally supported and cannot be added to non-upgradeable contracts.

Conclusion

Contrary to the typical “this vs that” comparison, MPC and smart wallets are not competing technologies, but rather complementary ones in the long run. MPC offers shared security at the key generation and management level, while smart contracts provide extensibility and an ecosystem approach to feature and application development. Plena Smart Wallet enables MPC like features where users can easily get onboarded with no seed phrase woes, while having all advantages of a smart contract wallet with native support for Account abstraction.

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