Why Threshold Signature Wallets are Better Than MultiSig Wallet: Top 5 Reasons

By: Frank Wiener

& Threshold Wallets vs. MultiSig - Let’s examine the top 5 reasons why Threshold Signature wallets are proving to be superior to MultiSig.

Until the fall of 2018, the most widely accepted scheme for secure multiparty approvals of cryptocurrency transactions was MultiSig.

Then SBI Holdings, a leading financial services provider in Japan, selected Threshold Signatures as the preferred wallet security scheme for their custody service, over MultiSig. Approximately one year later, the CEO of Binance tweeted that Threshold Signatures are "far superior" to MultiSig, saying they would "reshape the landscape for wallets and custodian services." Today, approximately twenty different providers have announced availability or their plans to offer Threshold Signature wallets or licensable technology. Let’s examine the top 5 reasons why Threshold Signature wallets are proving to be superior to MultiSig.

Both are cryptographic approaches to address the single biggest risk with cryptocurrency: that anyone with access to the wallet private key can steal the associated digital assets, and the transaction is not reversible. The difference between the two technologies is primarily the approach in mitigating this single point of failure, and more importantly the resulting implications of that approach.

Let’s review:

Reason # 1: Single Signature versus Multiple Signatures

Implication: Universal interoperability versus custom integration

Threshold Signatures appear on-chain as a standard single signature (typically an ECDSA or EdDSA signature). Presumably, every blockchain and digital asset protocol natively supports a standard single signature, so no special coding or smart contracts are required for multiparty approvals with Threshold Signatures. In contrast, MultiSig requires the ability for each digital asset protocol to record a variable number of multiple signatures. BTC natively supports this capability for basic MultiSig, but most other digital assets do not. This results in the requirement for many MultiSig wallets to support smart contracts or other customizations which introduces the opportunity for new vulnerabilities, added expense, and often delayed support of new digital assets.

Reason # 2: Smaller Transaction Size, Lower Cost, Higher Prioritization

Implication: Smaller transaction size, lower cost, higher prioritization

Threshold Signatures appear on-chain as a standard single signature regardless of the number of approvers. In contrast, MultiSig requires the recording of signatures for each participating approver. For protocols like Bitcoin, these additional signatures represent a very material percentage of the overall transaction size, thus reducing the number of transactions that can be processed per block. As a result, miners prefer to process single-signature transactions over MultiSig. This can result in processing delays or require higher bids to secure timely processing. In the case of Ethereum, the processing of additional smart contracts required to support MultiSig consumes additional gas. In both cases, the net result is an increase in the mining fees, which results in higher overall transaction fees for MultiSig.

Reason # 3: Increased Privacy and Security

Implication: Increased privacy and security

Threshold Signatures appear on-chain as a standard single signature, regardless of the number of approvers. Approvers can be changed, added, or removed, and there is no change in the resulting signature. So potential adversaries have no visibility to the security policy of a particular wallet, the timing of periodic updates, etc. In contrast, MultiSig records the signature of each approver on the public blockchain for successful transactions. The result is, potential adversaries have full knowledge of security policies such as how many parties are approving transactions, and have visibility whenever changes are made.

Reason # 4: Key Share Refresh Without Changing Public or Private Keys

Implication: Increased security efficacy, without the burden of transactions

A best practice in key management security is to proactively change private keys on intervals that are frequent enough that a hacker is unlikely to gain access to and use them before a new key is activated. This can be done with MultiSig, but each time you change the private key, or replace a lost key, you must also execute an on-chain transaction to synchronize the public-private keys and accounts. This results in increased transaction fees and complexity that make proactive security impractical with MultiSig.

In contrast, Threshold Signatures use multiparty computation (MPC) to create a private key in the form of distributed key shares that are held by different parties. It’s possible to generate a massive number of different and random combinations of distributed key shares to represent the same private key.

Reason # 5: Operational Flexibility

Implication: Ability to evolve and adjust to changing requirements

The only constant about the rapidly evolving digital asset market is change. Regulations are changing, customer expectations are changing, the digital assets themselves are expanding to include not only cryptocurrencies but security tokens which could completely redefine the scope and scale of the digital asset market. Regardless of how these things evolve, the nature of digital assets will require secure and increasingly flexible wallets. The off-chain nature of Threshold Signatures makes them profoundly more flexible and adaptable than the on-chain multiparty approval model of MultiSig.