Account Abstraction vs. MPC Wallets: Debunking the Myths

Summary

• MPC vs. account abstraction is a false narrative. Applied to crypto wallets, the two approaches serve different use cases and audiences.
• MPC (multi-party computation) is a privacy-preserving key management solution. MPC wallets are blockchain-agnostic EOAs with off-chain, non-upgradable multisig: the private key is split between different users/devices
• Account abstraction is a Virtual Machine methodology used by smart contract wallets, the most advanced self-custody tool for Ethereum. Through programmable protocols deployed on-chain, these account types offer complex asset operation and security functions that pave the way for Web3.

MPC vs. account abstraction has been a prevalent narrative in the crypto space, with the wallet applications of both these concepts seemingly competing for the same user base and investor attention.

In fact, the two tech approaches serve different purposes and audiences:

• MPC stands for (secure) Multi-Party Computation, a cryptography research branch rooted in the 1980s, developing methods for different/separate parties to jointly compute a function based on their inputs while keeping those inputs private. In short, MPC is a security model that aims to protect participants' privacy from each other and applies in many fields that need secure key management
• Account abstraction (AA) is a blockchain Virtual Machine methodology traced back to V. Buterin's EIP-86 (2016) and EIP-1014 (2018), refined to its current form through EIP 4337 (2021, 2023). AA proposes using blockchain accounts with programmable code deployed on-chain (smart accounts), creating functions that can independently manage assets and security keys while abstracting away the account (user input is no longer needed for these functions to be executed). An Ethereum innovation, the concept of account abstraction can also be adapted to other VMs/chains.

Applications of both AA and MPC are used for developing crypto wallets: AA wallets are also known as smart contract wallets or smart wallets (sometimes smart account wallets), while wallets using multi-party computation are simply MPC wallets.

Understanding the two wallet types' distinct functionalities, advantages, and disadvantages will help you make informed decisions for your blockchain asset management needs and security protocols.

Comparing the Two Approaches

Comparing AA and MPC wallets is like comparing cars and rockets: they both serve for transportation and have propulsion, but their approaches, purposes, and usability greatly differ. So, a direct comparison feels excessive and can translate to a superficial understanding of both concepts.

That being said, it is crucial to understand where and how the two can best serve users in the race for crypto adoption:

• Application/Environment: AA is a methodology created for Ethereum Virtual Machine applications; MPC wallets are blockchain agnostic, working on any chain the provider has integrated: Bitcoin, Ethereum, Cardano, Polkadot, etc.
• Account type: MPC wallets are developed as security & privacy upgrades for EOA private keys; account abstraction wallets harness the power of smart contract accounts
• Usability: both solutions bypass having a seed phrase as a private key and offer account recovery; MPCs have limited features in asset management; AA wallets are UX-driven, enjoy smart contract capabilities and advanced DeFi features
• Security: MPCs focus on securing the private key through off-chain multisig, keeping signer identities private; AAs approach security and multisig with flexibility: signer key management, 2FA, biometrics, hardware compatibility
• Privacy: MPC is, by definition, a privacy-preserving protocol; AA solutions can also be tweaked towards this purpose (Shnorr signatures can enable the same privacy advantages — see the winner of Future Awards at the 2023 ETH Prague Hackathon)
• Web3 compatibility: AA is a Web3-native solution; MPC wallets require more work for compatibility and alignment due to limited EOA functionalities, so they will have more difficulty in integrating native Web3 gaming or other applications
• Open-source: both MPCs and AAs can be open-source if the builders or stakeholders so decide
• Alignment with crypto ethos: by design, MPCs have a centralized component, valuing privacy over transparency (this is because the MPC concept was not created for blockchain but as a general cryptography solution); AAs were built as a tool to streamline blockchain asset operations for users, and adhere to the crypto ethos of decentralization, transparency, and privacy
• Future-proof: MPC as a security mechanism is here to stay and will continue to be used in the future to maintain user privacy and operational integrity; AA is a methodology that only recently came to prominence in the EVM space, and its applications are yet to be fully developed, although possibilities abound

MPC Wallets: Pros and Cons

Popular MPC wallets like ZenGo, Fireblocks, or Coinbase offer user advantages that derive precisely from the off-chain nature of their signer key approach, which translates to privacy and security benefits, as well as multichain abilities:

— Blockchain-agnostic:

• the same account can operate on any of the blockchains the wallet provider has integrated;
• signature scheme ubiquitous: once the several users/devices for key shards are defined, they will apply to any chain that the wallet interacts with

— Off-chain key management:

• signer access and rules can be managed without interacting with the chain through key holders' agreement
• reduced attack surface: by moving the logic of the key signature scheme off-chain, the account is less vulnerable to on-chain exploits
• signer privacy by design

— Privacy of signature shards: no one knows how many or which parties were involved in the signing process

— Gasless account management: defining the signature scheme, creating account back-ups, or recovering accounts is free.

MPC wallets do come with their limitations and disadvantages, some of which are inherent to their design:

— Non-upgradable signature scheme: once defined, even if off-chain, it is immutable

— Limited operational flexibility due to account type advanced (non-native for DeFi, GameFi, etc.)

— High computational overhead: custom cryptography required to accommodate the security for private key creation (also impacts scalability)

— No hardware support — MPC wallets have yet to integrate hardware wallets, so cannot use them as a signer (although technically, the possibility exists)

Account Abstraction Wallets: Pros and Cons

Account abstraction wallets such as Ambire, Safe, or Candide are making great strides toward improving usability and security in crypto asset management. They offer a slew of user benefits on EVM:

— True/flexible multisig:

• the signer key or shards can be modified/combined as per user's need
• programmable logic benefits like timelocks or spending limits
• users can define EOAs (including hardware wallets) as signers

— Gas abstraction & fee-saving mechanisms:

• fees payable in stablecoins or other tokens
• gas prices can be managed through mechanisms that support paying fees on any chain (e.g., Ambire’s Gas Tank)
• gas saving and cashback mechanisms can reduce the initial deployment fees in the long run

— Rich DeFi features:

• transaction batching: bundling multiple operations and only having to sign/pay fees once for the batch you are submitting to the blockchain (also resulting in fee savings)
• pre-approving transactions: because of their on-chain enforcement, smart contract wallets use AA to simulate transactions and pre-approve them
• social recovery mechanisms: define who “inherits” the account if you are no longer able to manage it

— Plug-in compatibility: additional verification and security logic can be introduced to create open-source marketplaces for wallet plug-ins

— Upgradable cryptography: new crypto mechanism can be integrated to obtain more complex features and increase security (NIST curve/Ed25519, Schnorr signatures)

Nonetheless, there are some disadvantages that AA wallets carry due to their very nature:

— Gas fees for deployment: these fees cannot be bypassed, and they apply for each of the chains the user wants to interact with

— Tech is still in the adoption stage: developer ecosystem has room to grow, align and innovate (e.g., EIP-1271 for standardizing signatures on EVM is still largely unadopted)

— AA wallets are not multichain: they are EVM-based, and adding other chains requires a considerable development effort

Combining AA and MPC

You might ask yourself – if both these technologies and approaches are popular and in demand, why have we not tried to combine them? The answer is: some are trying to (e.g., the joint venture between The Portal, an MPC solution, and smart wallet ZeroDev, for a Wallet-as-a-Service platform).

Integrations can be possible but require robust development efforts, which might not be the most straightforward way to get to Web3 — rather an attempt to unite two approaches that compete for attention in the hopes of harnessing the user base of both.

Conclusions

As in many cases in the crypto world, there are some misconceptions when comparing MPC vs. account abstraction wallets. They are more dissimilar than alike, and cannot, by design, serve the exact same purposes.

With the advent of EIP 4337/account abstraction, EVM is on a fast track to offer new asset management solutions to users, Web3-ready. This means they can compete with MPC wallets from a security and privacy standpoint, placing them in poll-position as the wallet type for Ethereum chains and sub-chains.

Both will remain relevant for users in the near future, only in different contexts: MPCs will probably become a niche for EVM while AA will simplify its road to Web3.

AA-level flexibility & complexity in operation will be difficult to address for non-ETH networks (developing custom cryptography can be a way forward, but predictably more time-consuming). So that might mean they will choose to stick with EOAs and use MPC wallets as a security solution for private keys.

Looking forward to our blockchain future, it’s clear that each will have applications and use cases. So here’s a wager against time: if Ethereum is to remain the top operational chain of Web3, MPCs will probably skew towards more centralized or institutional blockchain operations, while AA wallets will become the norm in personal and collaborative Ethereum wallets.

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Best MPC Wallets for 2023

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