The Future of Crypto Wallets: MPC, Multisig or Smart Wallets?

Explore the differences between MPC, multisig, and smart contract wallets to understand which technology is best suited for mainstream crypto adoption.

Introduction

Multisig crypto wallets have been around for a long time. Vitalik Buterin wrote an article for the Bitcoin Magazine in 2014 titled “Bitcoin Multisig Wallet: The Future of Bitcoin.” However, in the 10 years since then multisig wallets have failed to become mainstream.

We believe multi-key wallets strike the best balance between security and convenience for normal users for everyday use and have started mapping out a detailed framework which backs up this conclusion. In this article we explore the different technologies that can be used to build a multi-factor crypto wallet.

Multisig Technologies

Traditional Multisig

Multisignature (multisig) addresses were added to Bitcoin in 2011. While standard Bitcoin addresses require one private key to send funds, multisig addresses need multiple keys. The most common formats are "2-of-2" and "2-of-3" multisig. A 2-of-2 setup requires both keys to approve transactions, with each key typically being backed up. In a 2-of-3 setup, any two out of three designated private keys must approve a transaction. This design serves two key purposes: it prevents a single compromised key from leading to lost funds, while also ensuring funds remain accessible if one key is lost.

Advantages:

Drawbacks:

First Generation Smart Contract Multisig

With Bitcoin, multisignature functionality is built into the protocol, but when Ethereum launched in 2015, multisignature functionality was not built in to the protocol. The reasoning for this is that since Ethereum is turing complete, developers can implement their own multisig functionality using smart contracts. Many newer blockchains like Solana have followed this design philosophy.

Advantages:

Drawbacks:

Multi-Party Computation (MPC)

MPC has existed as a cryptographic concept since the 1980s, but its practical applications in cryptocurrency custody emerged much later. Unlike traditional multisig that requires multiple distinct signatures, MPC allows multiple parties to jointly compute a single valid signature without any party ever possessing the complete private key. This mathematical breakthrough enables new approaches to wallet security.

ZenGo made waves in 2019 as one of the first consumer crypto wallets to implement MPC technology. Their approach eliminated the concept of a private key entirely, instead using a two-party computation protocol between the user's device and ZenGo's servers to generate signatures. This provided a more user-friendly experience while maintaining strong security guarantees. Fireblocks later brought MPC to institutional custody, using a three-party computation model that distributes key shares across multiple geographic locations and security zones, enabling both security and operational efficiency for large-scale digital asset operations.

Advantages:

Drawbacks:

Second Generation Smart Contract Wallets

The evolution of smart contract wallets has been marked by two major developments: Account Abstraction (EIP-4337) and Layer 2 scaling solutions. Account Abstraction, proposed in 2021, allows smart contract wallets to handle their own transaction validation and gas payments, while L2 networks like Base and Optimism have made complex smart contract interactions financially viable for everyday use.

These advances are particularly significant for multisig implementations. Traditional smart contract multisig wallets faced challenges with high gas costs and complex user experiences, but the combination of L2s and Account Abstraction has created new opportunities for secure, usable solutions.

At the same time, the maturity of multisig smart contract security can be seen in projects like Safe (formerly Gnosis Safe), which secures over $100 billion in assets across multiple chains and has maintained a strong security record since 2017. Major players like Coinbase have also entered the space with their audited Smart Wallet implementation.

Advantages:

Drawbacks:

The reduced transaction costs and improved user experience enabled by L2s and Account Abstraction have made smart contract multisig increasingly viable for everyday users. Additional benefits like gasless transactions and custom validation logic further enhance the appeal, though they come with added complexity. As the ecosystem matures and best practices emerge, these solutions are becoming an increasingly attractive option for secure and convenient crypto wallets.

Comparison

After analyzing the various approaches to building secure and convenient crypto wallets, and through our own experience building wallet prototypes, we can draw several key insights about the tradeoffs between multisig, MPC, and smart contract solutions.

Metric Traditional Multisig First-Gen Smart Contract MPC Second-Gen Smart Contract
User Experience ★★
Increased transaction costs - arguably ok for storing assets like bitcoin. User experience can be made simple.

High costs and friction, very expensive on L1
★★
Seamless and familiar, standard transaction fees. Transaction signing process can be slow.
★★★
Smooth with AA and L2 scaling, low costs on L2
Cross-chain Support ★★
Chain-specific implementations

Chain-specific smart-contract implementations
★★★
Works across all chains

Chain-specific smart-contract implementations.
Transparency ★★★
Fully auditable on-chain
★★★
Fully auditable on-chain

Relies on off-chain protocols
★★★
Fully auditable on-chain
Implementation Complexity ★★
Requires chain-specific knowledge but straightforward protocol
★★
Smart contract development expertise needed, but patterns well established

Requires deep cryptographic expertise and complex infrastructure
★★
More complex with AA and L2, but good tooling available

Table 1: Comparison of Multisig Technologies Across Key Metrics

While MPC offers compelling advantages like cross-chain compatibility and lower transaction costs, our experience building with MPC technology has revealed important considerations that aren't immediately apparent. The primary challenge isn't the cryptographic protocols themselves - which are often open source and well-audited - but rather the auxiliary infrastructure and tooling needed to build production-ready wallets.

When implementing MPC wallets, teams face a critical choice: either rely on third-party providers who offer key generation and sophisticated signing functionality or undertake the technically complex and resource-intensive task of building these components in-house. While using third-party solutions accelerates development, it creates deep dependencies that are difficult to move away from. Building internal implementations requires significant cryptographic expertise and engineering resources. This creates a practical dilemma around transparency and trust - users must either rely on closed-source components or trust in complex custom implementations that may not be thoroughly battle-tested.

In contrast, both traditional multisig and modern smart contract wallets offer unparalleled transparency. Their security mechanisms operate entirely on-chain, allowing users and auditors to verify exactly how their funds are protected. The emergence of Layer 2 networks and Account Abstraction has largely addressed the historical drawbacks of smart contract wallets, particularly around transaction costs and user experience.

Conclusion

Ultimately, we believe the future of crypto wallets lies in solutions that maximize both security and transparency. While MPC represents an impressive technological achievement, the necessity of either trusting closed-source infrastructure or building complex cryptographic systems creates meaningful tradeoffs. Smart contract wallets running on L2 networks, with their combination of proven security, full transparency, and improving user experience, appear to be the most promising path forward for mainstream adoption.

This isn't to say MPC doesn't have an important role to play - particularly in institutional settings where the benefits of flexible key management and cross-chain compatibility may outweigh transparency concerns. However, for building open, trustless systems that align with crypto's core values, on-chain solutions provide the clear path forward.

Want a wallet that combines the security of multisig with the convenience of a regular wallet? Join our waitlist to be among the first to try Doppio.

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