Institutional investors, including funds and exchanges, have largely shifted from seed phrases to Multi-Party Computation (MPC) technology between 2018 and 2020. While seed phrases remain common for individual users, MPC-based wallets are now becoming available for retail investors.
A seed phrase functions as a single point of failure where the entire private key is derived from 12 or 24 words. In contrast, MPC splits the private key into shares held by different parties. Transactions are signed collectively without the full key ever being reconstructed or stored in one place.
Early MPC protocols like GG18 and GG20 faced security vulnerabilities identified in August 2023, though no user losses were reported. Modern providers have transitioned to newer, more efficient protocols such as CGGMP21 and DKLs23, which are optimized for smartphone performance and security.
For retail users, the most secure MPC configuration is the 2-out-of-3 scheme. This setup involves the user, the wallet provider, and an independent third party. This structure prevents any single entity from accessing funds unilaterally and provides an emergency recovery path if the provider ceases operations.
MPC technology enables features that are difficult to implement with seed phrases, such as account recovery, inheritance planning, and multi-user authorization. According to Chainalysis, approximately 20% of all issued bitcoins are considered lost, often due to the loss of seed phrases.
