Comparing MPC Wallets with Legacy Approaches

Seed Phrases and Single-Key Models

The earliest and still most widespread model of digital wallet security relies on the generation of a private key and its corresponding recovery phrase, often referred to as a seed phrase. This approach gives the user full control, as ownership of the seed phrase equates to control over the associated funds. It has the advantage of simplicity, as users can recover their wallet by re-entering the phrase into any compatible software or hardware environment. However, the same simplicity creates an acute vulnerability. If the seed phrase is lost, the user permanently loses access to their funds. If it is stolen, the attacker gains complete control. The model thus embodies both absolute autonomy and absolute fragility.

For individual users, seed phrases represent a high-risk burden, as secure storage requires physical precautions that may not be practical. Writing the phrase on paper introduces risks of theft, fire, or water damage. Storing it digitally creates exposure to malware and phishing. For institutions, the seed-phrase model is entirely inadequate, as it concentrates custodial power into a single point of failure. No matter how robust the operational procedures, if one individual gains access to the phrase, governance controls collapse. Against this backdrop, the distributed and threshold-based design of MPC wallets marks a decisive break from the vulnerabilities of single-key systems.

Hardware Wallets

Hardware wallets sought to improve on single-key models by isolating private keys within specialized devices. These devices are designed to keep private keys off general-purpose computers, reducing the attack surface available to malware and remote exploits. By requiring physical interaction, such as pressing a button on the device to authorize a transaction, hardware wallets added a tangible security layer. They became popular with retail users who sought stronger protection for long-term holdings.

Despite these improvements, hardware wallets remain tied to the same fundamental limitation: the existence of a single private key. The device itself may be secure, but the backup of its seed phrase reintroduces the original vulnerability. Furthermore, physical theft or destruction of the device poses significant risks. Institutions often find hardware wallets unsuitable at scale, as distributing devices to multiple stakeholders and managing secure backups quickly becomes impractical. MPC wallets address these limitations by distributing the key itself into multiple shares, removing the single-key dependency that hardware solutions cannot fully escape.

Multisignature Wallets

Multisignature, or multisig, wallets emerged as a widely adopted alternative to single-key models, particularly for institutions. In a multisig setup, a wallet requires authorization from multiple private keys before a transaction is valid. A common configuration might require two out of three designated parties to sign each transaction. This arrangement distributes authority and reduces the risk of a single compromised key leading to a breach. It also introduces governance capabilities, as different signing rules can be set for different types of transactions.

The strength of multisig wallets lies in their on-chain enforcement. The requirement for multiple signatures is encoded into the blockchain itself, ensuring that transactions cannot bypass the set policy. However, this visibility is also a weakness. Multisig transactions are easily identifiable on-chain, reducing user privacy by publicly revealing governance structures. They also carry higher transaction fees because each signature must be recorded on-chain. Moreover, multisig implementations are chain-specific; a wallet configured for one blockchain cannot easily carry its rules onto another without modification. This lack of portability has limited multisig’s flexibility in multi-chain environments.

MPC Wallets Compared with Multisig

MPC wallets achieve the same distribution of control as multisig while addressing many of its shortcomings. By generating a single standard signature through collaborative computation, MPC ensures that transactions are indistinguishable from those signed by a single key. This preserves privacy, as observers cannot infer the number of parties involved or the governance structure behind the wallet. It also reduces costs, since only one signature needs to be recorded on-chain, regardless of how many participants were involved in its generation. Additionally, MPC is protocol-agnostic. Because it produces standard signatures, it can be used across multiple blockchains without requiring native multisig support.

The off-chain nature of MPC coordination also introduces flexibility. Governance policies can be updated or customized without changing on-chain configurations. For example, a company can change its signing threshold or add new participants without migrating funds or altering blockchain-level contracts. This adaptability makes MPC more practical in dynamic organizational environments where participants and policies evolve. In contrast, multisig wallets often require redeployment and fund migration when policies change, adding friction and operational risk.

Institutional Adoption and Governance

The differences between MPC and legacy models become particularly evident at the institutional level. Seed phrases and hardware wallets are ill-suited for organizations that must distribute authority, enforce governance, and provide auditable security. Multisig offered a partial solution, but its transparency, higher costs, and limited portability have constrained adoption. MPC wallets, by contrast, provide a secure foundation that integrates cryptography directly with governance requirements. Institutions can design policies that enforce quorum-based approvals, geographic separation of shares, and role-based access, all without exposing their structure on-chain.

From an operational standpoint, MPC wallets also support business continuity. If one participant loses their share, the system remains functional as long as the threshold can still be met. Proactive refresh mechanisms further allow institutions to rotate shares regularly, ensuring long-term resilience. These features align with the compliance and risk management frameworks demanded by regulators, auditors, and large financial entities, explaining why MPC is increasingly the preferred model for institutional custody.