MPC Technology is Making Institutional Governance Easier
Table of Contents
The evolution of blockchain technology has revolutionized financial transactions, introducing trustless systems like Bitcoin that eliminate the need for reliance on traditional intermediaries. However, the Web3 industry faces unique challenges in governance, from centralized institutions offering convenience to decentralized protocols grappling with security threats.
I. Web3 Governance Challenges:
The decentralized and dynamic nature of the Web3 ecosystem introduces a set of distinctive challenges that demand innovative solutions. As the industry seeks to strike a balance between user convenience and robust security, the following aspects encapsulate the governance challenges faced by Web3 entities.
Risks of Trusting Centralized Institutions:
While centralized institutions have flourished in offering utility and convenience, the risks associated with trusting them have become increasingly evident. One notable incident that underscores these risks is the FTX fiasco, where users experienced significant losses due to the questionable practices of the centralized platform. This event highlights the vulnerability of entrusting user assets to centralized entities driven by profit motives. As a result, the need for robust and transparent governance practices becomes paramount to safeguard the interests of both institutional and retail Web3 users.
Security Threats to Decentralized Protocols:
Decentralized protocols, operating on the principles of trustlessness and autonomy, are not immune to security threats. The decentralized nature of these protocols makes them attractive targets for cybercriminals seeking to exploit vulnerabilities in storage and transactions. Incidents of protocols falling victim to cyber attacks, resulting in the theft of substantial amounts of value, emphasize the urgent need for enhanced security measures. As the Web3 ecosystem grows, the challenge lies in fortifying decentralized protocols against evolving and sophisticated cyber threats.
Incidents Highlighting Governance Issues:
Web3 governance issues extend beyond specific incidents and encompass recurring challenges faced by both centralized and decentralized entities. The persistent problem of poor governance, leading to asset mismanagement and theft, remains a focal point. In the absence of standardized governance practices, the risk of financial exploitation and misconduct within the Web3 space continues to be a concern. Addressing these issues requires a comprehensive approach that combines technological innovation with governance frameworks to ensure the integrity and security of digital assets.
In navigating these challenges, the Web3 industry recognizes the imperative of adopting solutions that not only preserve the trustless nature of decentralized systems but also provide the efficiency and security that users demand. The exploration of Multi-Party Computation (MPC) technology emerges as a promising avenue to tackle these governance challenges head-on.
II. Multi-Party Computation (MPC) Technology:
A. Introduction to MPC:
Multi-Party Computation (MPC) technology, rooted in the robust field of cryptography since the 1980s, has experienced a resurgence in relevance with the advent of blockchain technology. At its core, MPC involves the creation of separate shards of data, each concealing sensitive information. These shards, when combined, can compute specific results without revealing any individual shard's contents during the computation process. This cryptographic technique ensures the confidentiality of information and forms the foundation of MPC's application in digital asset wallet functionalities.
B. How MPC Addresses Governance Issues:
MPC technology stands out as a groundbreaking solution to the governance challenges prevalent in both centralized institutions and decentralized protocols within the Web3 ecosystem.
1. Enhanced Security Against Cyberattacks:
MPC wallets operate with a single key divided into multiple shards. Unlike multisig wallets that use several private keys, MPC wallets work collaboratively, with the key shards initiating a transaction. The off-chain computation ensures that no information about the key shards responsible for transactions is revealed on the blockchain. This inherent security feature makes MPC wallets highly resilient against cyberattacks, offering a significant improvement over traditional wallet types.
2. Key Refresh Features:
MPC wallet providers often implement key refresh features, allowing users to generate new key shards after every transaction or at predefined intervals. This dynamic aspect makes it nearly impossible for cybercriminals to gather information over an extended period, mitigating the risk of unauthorized transactions. Institutions and protocols relying on MPC wallets can thus maintain a proactive stance against potential threats.
3. Prevention of Internal Threats:
MPC wallets address the issue of internal threats within enterprises by preventing the initiation of corrupt transactions. With distributed access to digital assets, MPC technology establishes a secure governance framework that curtails the risk of misuse from within the organization. This adds an additional layer of protection, ensuring the integrity of digital asset transactions.
4. Transparency and Accountability:
MPC wallets offer high levels of transparency to enterprises. Those overseeing enterprise storage have access to comprehensive wallet transaction histories, including details about the value transferred and the members approving or declining the transfers. This increased transparency contributes to improved governance practices, providing stakeholders with a clear understanding of how funds are accessed and utilized.
C. Advantages Over Traditional Wallets:
1. Efficiency and Scalability:
MPC wallets streamline transaction confirmations by transmitting a single signature on-chain, making the process faster compared to multisig wallets. The efficiency gains extend to scalability, as enterprises can easily adjust the number of personnel possessing access to their MPC wallets by generating or deleting key shards. This flexibility ensures that governance structures can adapt to the evolving needs of the organization.
2. Interoperability and Integration:
Unlike some traditional wallet types, MPC wallets are highly interoperable with various blockchains. Enterprises and protocols can store multiple crypto assets in these wallets without the need for dedicated wallets for each blockchain. This interoperability extends to easy integration into existing platforms, eliminating the need for extensive rebuilding to accommodate MPC storage.
The integration of MPC technology into digital asset storage infrastructures signifies a paradigm shift in governance practices within the Web3 ecosystem. The combination of enhanced security, transparency, and efficiency positions MPC wallets as a logical choice for institutions and protocols managing multiple wallets and engaging in high-value transactions. The advantages offered by MPC technology present a comprehensive solution to the governance dilemmas faced by Web3 entities, paving the way for a more secure and robust digital asset management landscape.
V. MPC in Action and Future Implications:
A. Case Studies: Fireblocks, Liminal Custody, Blockdaemon:
Fireblocks stands out as an industry-leading custodian renowned for addressing diverse digital asset storage needs. Their non-custodial MPC wallet solution, operating with the innovative MPC-CMP algorithm, has become a benchmark for excellence. The algorithm's open-source nature allows for thorough auditing before implementation, ensuring transparency and reliability. Fireblocks' MPC offerings are compatible with over 50 blockchains and support hundreds, if not thousands, of tokens. The speed at which transactions are processed collectively, surpassing $4 trillion, underscores the effectiveness of Fireblocks in delivering secure and efficient MPC solutions.
2. Liminal Custody:
Despite being a relatively new entrant, Liminal Custody has rapidly gained traction in the digital asset custody segment. Over fifty crypto enterprises, including banking-grade institutions, leverage its services and benefit from its MPC storage solutions. Liminal Custody places a strong emphasis on distributed governance, exemplified through ceremonies where enterprise personnel participate in whitelisting processes and set transaction value limits. These security measures, combined with robust MPC protocols, have resulted in more than $550 million worth of assets securely stored and transactions collectively exceeding $6000 million, showcasing Liminal Custody's commitment to setting new standards for Web3 governance.
As one of the pioneering MPC wallet providers since 2018, Blockdaemon has played a crucial role in shaping the landscape of MPC-based custody solutions. The company introduces "Advanced MPC" technology, a self-developed module fortifying wallets on multiple levels. Blockdaemon's MPC solutions are widely adopted by both crypto enterprises and traditional finance institutions for their distributed signing capabilities, ensuring enhanced security. Notably, Blockdaemon goes beyond conventional MPC usage by incorporating the technology for transaction-related policies. By merging cryptography with key shards, the company adds an additional layer of security, making transaction manipulation highly improbable and securing transactions at two distinct layers.
B. Impact on Institutional Investors and Web3 Protocols:
1. Facilitating Secure Transactions for Institutional Investors:
MPC technology facilitates secure and efficient digital asset transactions for institutional investors. The collaborative nature of MPC wallets, combined with their ability to generate a single signature on-chain, expedites transaction confirmations. The improved security measures empower institutions to confidently engage with digital assets, knowing that MPC wallets provide a robust defense against cyber threats and internal vulnerabilities.
2. Enhancing Web3 Protocols Governance:
Web3 protocols managing significant liquidity can benefit from MPC wallets' predetermined parameters and distributed signing capabilities. The integration of MPC technology ensures that only legitimate transactions occur, reducing the risk of unauthorized access and manipulations. Decentralized Autonomous Organizations (DAOs) are also expected to embrace MPC wallets, providing an additional layer of security and transparency in their governance structures.
C. Anticipated Benefits and Industry Adoption:
1. Addressing Security, Transparency, and Efficiency Gaps:
MPC technology emerges as a comprehensive solution, filling existing gaps in security, transparency, and efficient governance practices. As user communities and regulators call for increased accountability and robust security measures, MPC wallets offer a compelling response to these demands. The technology's ability to provide secure, transparent, and efficient solutions positions it as a key player in shaping the future of institutional governance within the Web3 ecosystem.
2. Widespread Industry Adoption:
The anticipated benefits offered by MPC wallets are expected to drive widespread industry adoption. As institutions and protocols recognize the potential advantages, MPC technology is poised to become a standard in digital asset management. The scalability, interoperability, and enhanced security features position MPC wallets as a logical choice for platforms managing multiple wallets and conducting high-value transactions.
In adapting to the changing landscape of Web3 governance, the integration of MPC wallets into asset storage infrastructures emerges as a crucial step. By providing enhanced security, efficiency, and transparency, MPC technology offers a promising solution to the challenges faced by both centralized institutions and decentralized protocols in the Web3 ecosystem.
About Orochi Network
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