Multiparty Computation (MPC) has been gaining favor and adoption for custody-grade hot wallets – but did you know it can also revolutionize cold storage?
Optimized implementations of MPC now support multiparty, threshold signature approval schemes where all, some or none of the approving party’s key storage devices are offline (air-gapped) throughout the entire transaction approval process.
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This means that MPC can now be incorporated into existing fully air-gapped cold storage systems to provide immediate benefits over conventional key protection schemes. Strategically, doing so positions custodians for a smooth and rapid transition to cold-storage grade security that is fully online, with all the benefits of an online service.
Exchanges, brokers, and institutional investors typically deploy MPC to provide high-performance, security-optimized hot wallet custody services. But certain applications, such as Custody, may require offline storage for compliance.
The good news is MPC can now check that “offline” compliance box to provide a comparable or superior level of security and materially reduce the complexity of current operations.
MPC allows multiple approving parties to each use their share of a private key to generate a partial signature. It does so in a manner in which no entire key ever exists, and the key shares never leave the approvers’s storage devices.
These attributes materially reduce the classic threat of key theft or misuse.
When the required minimum number of approvers issue their partial signature a single Threshold Signature is generated which is recorded on the blockchain, executing the transaction. This signature appears on-chain as a standard single signature.
For optimized implementations, the MPC processing cycles for these online approvals can happen within milliseconds, for virtually instantaneous execution.
MPC-based Threshold Signatures support varying numbers of approvers for quorums requiring as few as 2 to as many as 20 approvers. Each approver will have their own share of a private key. In practice, most traditional hot wallet applications will require 2 or 3 approvers to achieve custody grade security.
Traditional offline cold-storage models may have 3 or more quorum approvers and require some or all of the approvers to have their private keys stored offline during the approval process. Blockdaemon recently enhanced the ThresholdSig implementation of MPC to support this partial or fully offline key storage and approval model.
It’s anticipated that in the near future, fully online MPC wallet models will become broadly approved by regulators for cold storage-grade custody services. Regulators will recognize them as providing a technically equivalent level of security as fully offline, air-gapped key storage solutions. As that happens, we should anticipate a revolutionary industry shift to online custody services using MPC-based wallets. Until that happens, off-line utility of MPC can provide custodians with immediate operational and security benefits, while positioning for fully online operations in the near future.
For more information, check out the white paper: Securing Digital Assets Under Custody, available at https://www.blockdaemon.com/resources.
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