As we work towards driving greater web3 adoption, what continues to cause concern is the secure storage of digital assets in wallets and, of course, the most intuitive user experience to do so. While wallets serve as the entry point or gateway to web3, the challenge (for some time now) has been that the more “secure” a wallet solution is for storing digital assets, the more complex it becomes. There seems to be a common trade-off — either the wallet solution is secure but complex, or it’s simple to use and manage but far more vulnerable to attacks.
The good news is that web3 wallet tech has advanced in many ways — and it’s creating stronger opportunities for bringing more brands and consumers on-chain. An example of novel wallet technology leading the charge is MPC (multi-party computation) wallets, a keyless and customizable approach to wallet security — allowing users to get the best of both security and convenience without the trade-offs above. Let’s dig into why and how.
Notably, not all wallets are created equal. There are different types of crypto wallets, each with their own strengths and weaknesses. Below, we’ll explore the different types of wallets and why we believe MPC wallets are emerging as the future of safe and secure asset storage and management.
Hardware wallets: Security with pain 🔐
Hardware wallets (cold wallets) are physical devices that store your private keys offline, making them almost immune to hacking attempts. They’re widely considered the gold standard of security in the crypto world. However, hardware wallets have their limitations. They’re expensive, and they’re often not very user-friendly. Hardware wallets make it almost impossible to drive rapid, seamless onboarding experiences into web3 — using them requires multiple steps. Cold wallets are also vulnerable to physical damage or loss, which can result in the loss of your funds.
Software wallets: Convenience at a cost 🚨
Software wallets, also known as hot wallets, are software applications that run on your computer or mobile device. They’re convenient, easy to use, and often free. However, they’re also vulnerable to hacking attempts, malware, and phishing attacks. Hot wallets are slightly easier to onboard users — but still require notable user education especially around private keys and seed phrase management. If your computer or mobile device is compromised, your assets could be lost or compromised.
Multi-Signature Wallets: Security with shared responsibilities ⚙️
Multi-signature wallets require multiple signatures to complete a transaction, making them more secure than single-signature wallets. They’re often used by businesses or organizations that require multiple people to sign off on transactions. However, they require a higher degree of technical expertise to manage and multiple parties need to be present to make transactions — which is challenging in the new decentralized working world.
Meet MPC Wallets: The best of both worlds — convenience with security 💪
MPC wallets, or multi-party computation wallets, are a new type of crypto wallet that combines the security of hardware wallets with the convenience of software wallets. MPC’s use a technique called threshold cryptography, which divides the private key into multiple shares that are distributed among different parties. This means that instead of relying on a single private key, MPC wallets use multiple private keys that are distributed across multiple devices. This also means that even if one of your devices is compromised, your assets are still safe. MPC wallets are also easy to use and don’t require any technical expertise to set up or manage.
We interviewed Chris Grilhault des Fontaines, COO at API-driven developer tool and web3 wallet infrastructure platform DFNS to get his thoughts on the evolution of wallets security and digital asset storage and why he believes MPC wallets are going to change the game:
“Wearable hardware, USB sticks — they just felt wrong, like a legacy bad habit,” Chris referenced as a signal to need improvement in wallet security. “They weren’t going to enable this industry to scale beyond a couple of million people or attain the hundreds of millions that bank in a traditional way — common consumers who are careless regarding their funds. We see it as a single point of failure, or a single point of trust, in having one physical device that, if stolen or lost, could lead to the wipeout of your life savings.”
Chris also explained how multi-party computation (MPC) makes it extremely difficult to breach wallets via a single point of entry (and vulnerability). This helps reverse the doomsday mentality over security often experienced in crypto, which distracts from its true value and energy.
MPC wallets also make it far easier to onboard new users into web3 as the experience can be programmed to be convenient and secure via tools such as DFNS’s flexible API — making it an ideal option for brands who want customizable community security options to embed into their tech stack. Once users are onboarded, they can always add additional layers of security by moving to a hardware wallet.
The Future of Digital Asset Security — powered by MPC wallets 🔔
Digital asset storage and security is constantly evolving. However, we believe that MPC wallets are emerging as the most promising tech for helping new web3 (and old) users safely own and manage their assets, as well as for brands who want more peace of mind for how their communities engage with digital assets and tokenized rewards.
MPC wallets’ level of security is on par with hardware wallets, while still being as accessible and easy to use as soft wallets. Additionally, MPC presents more opportunities for configuring the exact wallet access and enforcement policies that fit your needs best, so you can focus more on building. This innovation and flexibility is why we at Co:Create are using MPC wallets for our user onboarding experience.
Learn more about DFNS.