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Blockchain Security, Cryptocurrency, Featured

Multiparty Computation: Absolute Crypto Security or a Loophole for Regulators

The latest security term or protocol to take the crypto world by storm is multiparty computation. It has already been crowned the king for secured and safe transactions by the crypto community. The latest development owes to the fact that 2020 has seen adoption by both custodial as well as non-custodial players, gaining significant traction in the digital assets domain. But is it as bullet-proof as being claimed or can a silver bullet shatter through the barrier? Experts are divided, with some claiming that the enhanced security may come at a price of censorship by the regulators, compromising the foundational principle of decentralization, on which cryptocurrency was built.

Define Multiparty Computation

Multiparty computation (MPC) or secure multiparty computation (SMPC) is a cryptographic protocol, which dispenses a computation across several participants in a network, where no individual participant can see the data of the other participants. Multiparty computation protocol can allow analysts and data scientists to compute on shared data privately, compliantly, and securely, without exposing or moving it ever.

The technology of MPC deals with splitting the private keys into parts or segments. Those are then distributed among various parties involved in the transactions. One key segment is held by the client and the other is held by the MPC provider. The intention is to enhance the security by making sure that none of the parties have complete control over the transaction that can be executed only under circumstances of both the parties having and being provided their key segments.

The Alleged Issues with Multiparty Computation

The MPC providers peg their technology as one that just aids to make the transaction secure. But the reality is not quite that simple. Multiparty computation providers act as an intermediary whose approval is a must for the execution of a transaction.

That way the role played by MPC providers is equivalent to banks with blockchain being the SWIFT system equivalent. The sender’s bank can be replaced with a third-party MPC provider and the SWIFT system with blockchain technology. The only differentiating point here is the way in which the payment is sent. In the case of a bank, it is the sender that instructs the release of the funds to the bank. With an MPC provider, the sender and the provider sign the execution of a transaction together. Both the parties involved, submit a partial key which the MPC provider transmits to the blockchain.

An argument can be made, about the noticeable difference between MPC providers and the banks. While the traditional banks have the authority to freeze and even confiscate the funds, MPC does not enable that. The question of private key security has forever been the most essential sticking point for crypto firms and institutions. Hence, the capability to recover funds when the key is lost is very critical for any firm, which is claiming to provide safe and secure cryptocurrency storage.

The Censorship Risk by Regulators

Since MPC providers have responsibility for holding the customers’ funds as an intermediary, it is quite evident that there is a high chance that a backdoor might be offered for the regulatory intervention. It means that the MPC service providers will be taking up the same role as the traditional banks. On an occasion that a regulatory body requires an MPC company to halt the processing of a transaction, then the company has to comply by that. Moreover, if the MPC provider allows the users to recover the lost private keys, it will allow the regulator as well to issue an order to freeze or confiscate funds. To keep assuming that it is a request that is bound legally, the service provider will be forced to be compliant, as non-compliance may lead to the cancellation of the service license. Interference from the regulators is already a persistent problem in the crypto community.

If we recall, it was June of 2019 that the Financial Action Task Force (FATF) gave the approval to regulate the virtual assets, including the service managers. While it is true that the overall compliance is quite low, FATF is continuing to spread the net and will continue to do so until all of the Virtual Asset Service Providers are within their grip. The concern here is the fact that the MPC service providers match the Virtual Asset Service Providers’ profile totally. These entities manage and transfer clients’ funds in the same way as banks for the wire transfer. The same regulatory compliances are applied to the companies that hold, control, and manage virtual assets either directly or indirectly.

The regulations create exact same expectations from the MPC providers as the ones, which are applied to the banks at present. Ultimately, this would mean that the large transactions could be reported to the regulatory bodies and clients will have to go through the same KYC and AML checkpoints as required in the banking system. On the off chance that more proof was required, we just need to take a gander at the enormous banks that have just perceived that MPC innovation offers benefits that fit with their current consistency structures. The way that MPC specialist organizations limit the versatility of their clients by making reliance on their wallets could likewise end up being appealing to banks, making a sort of constrained unwavering to be far eliminated from the vision of open money that is held dear by numerous individuals in the crypto space.

Ending Thoughts

From the technical perspective, multiparty computation seems to be impressive and might as well fit perfectly for the ones who have zero concerns about the involvement of regulators in cryptocurrency transactions. But, for the ones who hold concern over the involvement, there needs to be aware that the use of MPC holds the backdoor ajar for interference in the centralized and regulated crypto domain similar to that being experienced by exchanges that are regulated and centralized. This reason is strong enough to think twice before using it or advocating its utilization. Since the technology is still in its nascent stages, there is a thought and idea of developing decentralized MPC. Although a far-reaching thought, that might be a step towards the right path for the advocates of decentralized and open networks.

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