Multi-Sig vs. MPC-CMP vs. HSM Pros and Cons

The rise of digital assets has created an urgent need for institutions to adopt advanced security measures to protect their holdings and ensure governance over transactions. While multi-signature (multi-sig) wallets have historically been a go-to solution, newer technologies like MPC-CMP are redefining standards for digital asset security. Hardware Security Modules (HSM) also remain a popular choice, though they come with certain limitations.

This article explores these technologies, highlighting the different pros and cons of each, and the emerging technologies used for securing institutional assets.

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Multi-Signature Wallets

Multi-signature wallets distribute transaction approvals across multiple signers. This structure enhances security and governance but comes with challenges in scalability and usability.

Pros:

• Distributed Approval: Requires multiple signatures, reducing the risk of a single point of failure.

• Customizable Thresholds: Institutions can define signing requirements (e.g., 2 out of 3).

Cons:

• Dependency on On-Chain Protocols: Multi-sig configurations must be supported natively by the blockchain and can differ in implementation greatly across different protocols.  

• Scalability Issues: As institutions grow and scale into bigger teams, managing signer lists and access control becomes complex.

• Cost: Multi-sig wallets often incur higher transaction fees due to the additional data stored on-chain.

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MPC-CMP:

MPC-CMP, the next generation of private key security that eliminates single points of failure by splitting cryptographic key shares among multiple parties such that a key is never gathered during the first creation of the wallet or during signature, requiring collaboration for every transaction without ever reconstructing the private key.

Strengths:

• Superior Security: Key shares remain distributed and never concentrated on a single device at any point in time, significantly reducing attack vectors.

• Blockchain Agnostic: MPC-CMP operates off-chain, providing flexibility across diverse blockchain protocols.

• Seamless Scalability: Easily adaptable to institutional needs without increasing operational complexity.

• Enhanced Usability: Removes the need for manual coordination among signers, ensuring speed and efficiency.

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HSM:

HSMs store cryptographic keys in a secure physical environment, completely disconnected from the network, and have been widely adopted as a secure mode of securing digital assets.

Strengths:

• Hardware-Level Isolation: Offers offline protection against software-based attacks and provides authentication inside the module. Keys are also kept within the device offline.

• Regulatory Compliance: Well-established as a secure key management solution.

Limitations:

• Costly Infrastructure: Requires significant investment in hardware and maintenance.

• Lack of Flexibility: Limited to specific blockchain protocols and use cases.

• Single Point of Failure: Despite hardware security, loss or compromise of an HSM can lead to catastrophic consequences.

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Why MPC-CMP vs HSM is not one versus the other

Compared to multi-sig, MPC-CMP represents a paradigm shift in digital asset security by addressing the limitations of both.

• Security Without Compromise: Combines distributed approval (like multi-sig) with the flexibility and scalability lacking in HSMs.

• Unmatched Speed and Reliability: Rakkar’s MPC-CMP framework supports a 2-hour SLA for cold wallet transactions, ensuring institutions never face unnecessary delays.

• Cost-Efficiency: Operates off-chain, reducing transaction fees compared to on-chain multi-sig setups.

That being said, the perceived competing nature of MPC-CMP and HSM has resulted in confusion in the industry. In actual fact, both serves different purposes and are often used in combination.

Rakkar utilizes the ultra-secure, multi-user approval technology of MPC-CMP to eliminate single points of failure, while ensuring security of the key shards by layering our key security infrastructure with HSM to offer unmatched protection for institutional digital assets. Coupled with ISO 27001 certifications and SOC 1 and 2 attestations, this approach delivers the highest level of security and trust.

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Conclusion

Institutional digital asset security is evolving and new technologies surfaces to bring new generations of security. As Asia’s leading digital asset custodian serving digital asset exchanges such as Bitkub, Rakkar’s adoption of MPC-CMP and HSM places it at the forefront of key security, offering a seamless, secure, and scalable solution for safeguarding institutional assets. It is key for institutions to find a solution that fits their business needs which is commonly a balance between digital asset security and operational efficiency.