Overview

In September 2020, KuCoin suffered a major security breach when its hot wallet was hacked, leading to a loss of $275 million in cryptocurrency. The attack was primarily caused by the leakage of the private key used to manage the wallet. Traditional private key management methods have several vulnerabilities—they can be easily lost, stolen, or compromised due to single points of failure, making them unsuitable for securing high-value assets. Relying on a single private key also increases the user burden and can result in irreversible asset loss due to hacking, device failures, or human errors.

The crypto industry has shifted its focus to more secure and efficient asset management solutions to address these security concerns. Two leading approaches—MPC (Multi-Party Computation) wallets and Multisig wallets—offer improved private key security through different mechanisms, reducing risks while providing greater flexibility for institutions, enterprises, and individual users.

MPC Wallets (Multi-Party Computation Wallets)

MPC (Multi-Party Computation) wallets enhance private key security through cryptographic techniques. They use a Threshold Signature Scheme (TSS), which splits the private key into multiple fragments and distributes them across different nodes or devices. Multiple fragments work together during transaction signing to generate the signature without ever reconstructing the complete private key on any single device. This approach effectively prevents private keys from being stolen or lost while improving security.

The key advantages of MPC wallets include no single point of failure, multi-chain support, and the fact that they do not rely on blockchain smart contracts. As a result, they are widely used for institutional fund management (e.g., exchanges, banks), DeFi platform asset custody, and even personal users (such as ZenGo’s seedless wallet). Representative wallets include Fireblocks, ZenGo, and Qredo.

Source: https://www.fireblocks.com/

Multisig Wallets

Multisig wallets implement a multi-signature mechanism at the blockchain smart contract or protocol level. This allows users to set up multiple private keys (holders) and require at least N-out-of-M signatures to authorize transactions. For example, a 3/5 multisig wallet requires at least 3 out of 5 designated holders to approve a transaction before it can be executed.

Since the signing process is publicly visible and relies on smart contract execution, multisig wallets offer advantages such as decentralization, high transparency, and strong security. They are particularly suited for managing DAO treasuries, enterprise or foundation asset management, and shared funds among families or teams. Multisig wallets are primarily used on EVM-compatible chains (such as Ethereum). Representative wallets include Gnosis Safe, BitGo, and Casa.

Source: https://safe.global/

Key Differences

MPC and multisig wallets have strengths and weaknesses, making them suitable for different use cases.

MPC wallets use multi-party computation (MPC) technology, where the private key is split and distributed across multiple locations. They are ideal for institutional asset custody, CEX/DeFi asset management, high-frequency trading, and personal asset storage. Transactions are signed off-chain, making them faster, and social recovery features improve security and usability.

In contrast, multisig wallets rely on multiple private key signatures, making them well-suited for DAO governance, DeFi fund management, and team-based asset control. They ensure decentralization and transparency but have lower transaction execution efficiency and require users to manage multiple private keys.

Regarding security, MPC wallets eliminate single points of failure—an attacker must compromise multiple nodes to steal assets, and they provide more flexible recovery mechanisms. Multisig wallets, however, depend on whether signers are independent. If a majority of signers collude, there is an insider threat risk. Additionally, MPC wallets involve higher computational complexity and deployment difficulty but lower transaction costs.

While multisig wallets are easier to implement but incur higher on-chain transaction fees. From a compliance standpoint, MPC wallets align better with regulatory requirements, making them preferable for institutions, whereas multisig wallets are more commonly used for decentralized governance.

1. Working Principle

The core technology behind MPC wallets is Multi-Party Computation (MPC), which splits the private key into multiple fragments and distributes them across different devices or servers. During transaction signing, multiple nodes collaborate using the Threshold Signature Scheme (TSS) to generate the final signature without ever exposing the private key. This significantly reduces the risks of single points of failure and private key leaks.

Source: https://www.qredo.com/blog/what-is-multi-party-computation-mpc

Multisig wallets, on the other hand, use the traditional Multi-Signature (Multisig) mechanism, where a wallet address requires multiple independent private key signatures to execute a transaction. Typically, users can set signature thresholds such as 2/3 or 3/5, meaning a transaction will only be executed once the required number of signatures is met. This method relies on blockchain-native multisig mechanisms or smart contract implementations.

Source: https://bitcoinmagazine.com/guides/what-is-a-multisignature-wallet

2. Asset Management and Use Cases

For asset management, MPC wallets are better suited for institutional asset custody, centralized exchange (CEX) fund management, high-frequency trading, and individual crypto storage. Since private key fragments are stored separately, MPC wallets offer a user experience similar to Web2, meaning users do not need to manage private keys directly.

Multisig wallets are primarily used in DAO (Decentralized Autonomous Organization) governance, DeFi treasury management, and team-shared fund management. For example, a DAO can implement a multisig mechanism to ensure that any fund movement requires approval from multiple core members, thus improving security and transparency.

3. Transaction Signing Methods and Efficiency

MPC wallets perform off-chain signing. Each node computes its private key fragment locally, and only the final signature is submitted on-chain. This results in faster transaction confirmations and lower Gas fees. Additionally, MPC does not rely on blockchain-native multisig features, making it compatible with all blockchains.

Multisig wallets, on the other hand, require multiple signers to approve transactions directly on-chain. The transaction is executed only when the required number of signatures is met. While this enhances transparency, it also results in slower confirmation speeds since each signature requires an on-chain transaction fee.

4. Private Key Management and Security

MPC wallets provide enhanced security by ensuring the private key is never stored in full at any location. Even if one key fragment is leaked, attackers cannot directly steal funds. The key recovery mechanism relies on multi-party computation and key sharding, meaning that even if a node goes offline or loses its data, the private key can still be restored using other nodes.

Multisig wallets base their security on multiple independent private keys. While this prevents single points of failure, it introduces the risk of collusion—if a majority of signers cooperate maliciously, they can steal funds. Additionally, the funds may become permanently inaccessible if a signer loses their private key and the threshold cannot be met.

5. Decentralization and Permission Management

The decentralization level of an MPC wallet depends on the number of participating MPC nodes and how they are distributed. Regarding permission management, MPC wallets allow flexible adjustments, meaning signers can be dynamically changed, and access control policies can be updated easily.

Multisig wallets, however, rely on preset signature rules, making modifications more cumbersome. If a signer needs to be replaced or the required signature threshold must be changed, the existing signers must reach a consensus and execute an on-chain transaction to update the settings.

6. Compatibility and Deployment Complexity

MPC wallets are compatible with all blockchains and can be seamlessly integrated with Web3 DApps and smart contract wallets. However, due to the complexity of MPC technology, deploying an MPC wallet requires additional computing resources and a distributed node infrastructure, making development and deployment more challenging.

Multisig wallets depend on blockchain-native multisig mechanisms or smart contracts.

Some blockchains, like Bitcoin, have limited multisig functionality, while others, like Ethereum, allow flexible multisig implementations via smart contracts. Since multisig smart contracts are well-established, development and deployment are relatively simple.

7. Transaction Costs and User Experience

MPC wallets use off-chain signing, reducing the need for on-chain interactions, which leads to lower Gas fees. Additionally, users do not need to manage private keys directly, making the overall experience smoother.

Source: https://spark.litprotocol.com/account-abstraction-and-mpc/

Multisig wallets incur higher transaction costs because each signature must be confirmed on-chain, leading to higher Gas fees. Users must also actively participate in signing transactions, making the experience more complex than MPC wallets.

8. Transaction Auditability

The transaction signing process in an MPC wallet occurs off-chain, relying on the Multi-Party Computation (MPC) protocol to divide private key fragments. Since the signing process does not take place directly on-chain, external auditors find it difficult to track and verify the specific signing steps. While the final transaction is recorded on the blockchain, the individual signing process and permission allocation remain undisclosed. As a result, MPC wallets offer strong privacy protection but lack audit transparency, making them unsuitable for highly regulated compliance scenarios.

In contrast, multisig wallets provide full transparency—every signing action is recorded on-chain, ensuring auditability. All transaction history and authorization details are stored on-chain, facilitating third-party audits and regulatory oversight. This high level of transparency makes multisig wallets ideal for corporate financial management, DAO fund governance, and other use cases requiring strict oversight. Therefore, multisig wallets have a clear advantage in security and compliance, making them better suited for regulated fund management scenarios that require strict control and monitoring.

Usage Recommendations

1. Institutions and Enterprises (Banks, Funds, Centralized Exchanges, Asset Custody Firms)

Recommended Wallet: MPC Wallet

Reason: MPC wallets eliminate single points of failure, comply with regulatory requirements, support high-frequency trading, and offer high security with a user-friendly recovery mechanism.

Use Cases: Institutional asset custody, CEX fund management, DeFi asset storage.

Advantages: Regulatory compliance, fast transactions, dynamic signer adjustment.

2. DAO Organizations and Decentralized Governance Teams

Recommended Wallet: Multisig Wallet

Reason: Multisig wallets ensure transparent team governance, require multiple signatures for transactions, and are well-suited for decentralized management.

Use Cases: DAO treasury management, community voting, DeFi fund pools.

Advantages: No additional technical development required, compatible with smart contracts, and ensures transparent decentralized governance.

3. Regular Users (Individual Investors, Web3 Users)

Recommended Wallet: MPC Wallet

Reason: Users do not need to manage private keys, providing a better experience while preventing irrecoverable asset loss due to private key mismanagement.

Use Cases: Personal crypto asset management, daily transactions, Web3 DApp interactions.

Advantages: Easy to use, secure, supports social recovery, and requires no complex operations.

4. High-Frequency Traders (Quant Funds, Market Makers)

Recommended Wallet: MPC Wallet

Reason: MPC enables off-chain transaction signing, making it significantly faster and ideal for high-frequency trading.

Use Cases: Quantitative trading, exchange market-making, institutional asset management.

Advantages: Low latency, no need for multiple on-chain signatures, high execution efficiency.

5. Hardware Wallet Users (Users Seeking Offline Private Key Storage)

Recommended Wallet: MPC Wallet (Integrated with Hardware Security Module - HSM)

Reason: MPC can be integrated with HSM to provide higher security, while traditional hardware wallets do not typically support multisig.

Use Cases: Long-term asset storage, cold wallet management.

Advantages: Enhanced security, no complete private key storage, prevents single-point attacks.

6. Enterprises with High Regulatory Compliance Requirements (Financial Institutions, Banks)

Recommended Wallet: MPC Wallet

Reason: MPC prevents single-point private key storage, making it more regulation-friendly while supporting compliant asset custody solutions.

Use Cases: Bank-grade asset custody, compliant financial services.

Advantages: Meets regulatory standards, stores private key fragments separately, reduces single-point exposure risks.

7. Web3 Developers & DApp Teams

Recommended Wallet: Choose Based on Specific Needs

• If the Web3 DApp needs DAO governance compatibility → Use a Multisig Wallet.
• If security-focused smart contract wallets are needed → Use an MPC Wallet.

Reason: MPC integrates easily with Web3 applications, whereas Multisig is best for DAO governance.
Use Cases: DApp user asset management, smart contract interactions, on-chain governance.

MPC wallets are best for institutions, individual users, exchanges, regulated enterprises, high-frequency traders, and Web3 smart wallets because they offer high security, seamless user experience, fast transactions, and regulatory compliance.

Multisig wallets are ideal for DAOs, community governance, and team collaboration, as they provide decentralization, transparency, smart contract compatibility, and shared control.

For enterprises and high-frequency traders → Go with an MPC wallet.
For DAOs and decentralized governance teams → A Multisig wallet is the better choice.

Wallet Examples

MPC wallets are best suited for high-security scenarios that do not require private key management, while multisig wallets are more suitable for team or institutional fund management. When choosing a wallet, consider factors such as use case, security needs, and ease of use. The table below provides specific wallet examples for reference.

Risks

Risks of MPC Wallets

Multi-Party Computation (MPC) wallets use distributed computing to protect private key security and reduce the risk of a single point of failure, but they still face the following challenges:

1. Security of Computational Nodes

Node Compromise: If an attacker gains control of enough MPC computing nodes, they may be able to reconstruct the private key or execute unauthorized transactions.

Insider Threats: Malicious nodes colluding can steal or tamper with key shares, compromising the wallet’s security.

2. Complex Recovery Mechanisms

No Seed Phrase Backup: If a device is lost or a node fails, recovering the wallet is more complicated than traditional solutions.

Dependence on Third Parties: Some MPC solutions rely on service providers for key recovery. If the provider goes out of business or experiences a failure, users may lose access to their assets.

3. Risks of Computational and Communication Attacks

Man-in-the-Middle (MITM) Attacks: Attackers may intercept data during MPC computations, potentially extracting sensitive information.

Side-Channel Attacks: By analyzing computation time, power consumption, or network traffic, attackers might infer key-related data, reducing security.

4. Vulnerabilities in Code and Algorithms

Cryptographic Weaknesses: If the encryption algorithms used in MPC are broken, attackers could recover the full private key.

Code Implementation Risks: Bugs or security flaws in MPC wallets could lead to private key leaks or asset theft.

5. Dependency and Decentralization Issues

Reliance on Specific Networks or Providers: Some MPC solutions depend on cloud services or custodial institutions, reducing decentralization and increasing systemic risk.

Regulatory Uncertainty: Some countries may impose restrictions on MPC technology, affecting its availability and regulatory compliance.

Core Weakness of MPC EOA: Non-Revocable Keys

MPC-based EOAs (Externally Owned Accounts) still rely on private key signatures but lack a true revocation mechanism:

• Old Key Shares Remain Usable: Even after “resharing” the private key, previous key fragments can still be used to recover the private key.
• No On-Chain Key Revocation: There is no way to restrict the use of old key fragments on-chain, meaning that previous key holders could still sign transactions, posing a security risk.

Compared to MPC-based EOAs, smart contract wallets provide more secure key management solutions:

• Key Revocation: Old keys can be removed on-chain, preventing unauthorized usage.
• Permission Changes: Support for MultiSig or on-chain governance enhances security.
• Programmable Security Rules: Features like cool-down periods can prevent malicious transactions.

Source: https://x.com/VitalikButerin/status/1674032447531495426

Risks of Multisig Wallets

1. Private Key Leakage Risk

Multisig wallets rely on multiple private keys, with each signer holding a full private key. An attacker could potentially steal funds if any private key is compromised. Although transactions require multiple signatures, the risk of key leaks still poses a security threat.

2. Insufficient Recovery Mechanisms

If a signer loses their private key or cannot provide a signature, the funds may become permanently inaccessible. Unlike MPC wallets, multisig wallets do not have a cryptographic recovery mechanism, making the restoration process more complicated and potentially unreliable.

3. Governance and Centralization Risks

Multisig wallets operate based on predefined signature rules and designated signers. If a majority of signers collude or are compromised, they could take control of the wallet’s funds. Additionally, if trust issues arise among signers, it could lead to asset management disputes or loss of control over the wallet.

4. Transaction Delays and High Fees

Each transaction requires multiple signers to approve and confirm their signatures on-chain, making the process slow and expensive. For high-frequency trading or scenarios requiring rapid execution, these delays can significantly impact efficiency.

5. Legal Liability Issues

Multisig wallet governance is typically decentralized, meaning multiple signers share control over funds. However, if something goes wrong, it can be difficult to determine legal responsibility. If a signer becomes inactive or engages in fraudulent behavior, the lack of clear legal accountability may lead to disputes.

6. Smart Contract Vulnerabilities

Multisig wallets rely on smart contracts for transaction signing. Funds could be stolen or manipulated if a contract contains bugs or is exploited. Even though multisig transactions are transparent on-chain, poorly written smart contracts introduce potential security risks.

7. Operational Complexity

Multisig wallets require coordination among multiple signers, and each signer must manually approve transactions. This added complexity can be inconvenient for non-technical users and may lead to mistakes or transaction delays due to mismanagement or lack of technical support.

When choosing a multisig wallet, users should fully assess the risks and take appropriate precautions, such as designing robust signature rules and improving signer management.

Conclusion

As the demand for secure crypto asset management continues to grow, MPC wallets and multisig wallets play key roles in different scenarios, meeting diverse security needs.

MPC wallets provide decentralized private key management, efficient off-chain signing, and regulatory compliance, making them ideal for institutional asset custody and high-frequency trading. Multisig wallets leverage blockchain-native support, excelling in decentralized governance and transparent fund management, making them widely adopted by DAOs and DeFi treasury management.

Both solutions have distinct advantages, and users should weigh security, usability, and cost factors to select the most suitable wallet for asset protection and optimal user experience.

Additionally, MPC wallets on EOA accounts face a key revocation issue, creating potential security risks. In contrast, smart contract wallets provide more flexible and secure permission management, making them a more reliable choice.