Cryptocurrency

A Crash Course on Threshold Signature Scheme Wallets

Threshold Signatures Schemes (TSS) have significantly improved the security and scalability of cryptocurrency wallets. Unlike traditional multi-sig wallets, TSS wallets do not give any user a private key in its entirety. Instead, it splits the private key up into several slices that each member of the cryptocurrency wallet owns a fraction of. When N out of M (example: 2 out of 3) of those key slices are combined, the transaction is considered valid and is signed on-chain. Let’s take a closer look at threshold signature schemes, how they work, and how they enhance the security and scalability of cryptocurrency wallets.

What is a Threshold Signature?

A threshold signature scheme is a technique used to distribute a wallet’s private key; this results in increased wallet security and scalability.

“TSS allows us to sign transactions similar to multi-sig, but with a larger and more flexible number of participants without impacting usability. It is also very fast with low computational complexity and preserves privacy.” Said Yusaku Senga, CEO of Swingby Network, a company that has created a protocol that implements TSS to enable inter-blockchain swaps.

Several companies are interested in implementing TSS to improve their security, lower their transaction costs, and increase their transaction speeds. This is because Threshold signatures have many advantages compared to a single signature or regular multi-signature wallet.

   The Advantages of TSS Multi-signature Wallets

 A TSS wallet gives each member of the cryptocurrency wallet a key-slice rather than a unique private key. When N out of M of the key slices are combined, a transaction is considered valid, yet, only one signature will be recorded on-chain for the transaction rather than a signature for each member of the cryptocurrency wallet–as is the case with a traditional multi-sig wallet. The result is overall increased security since a private key can never be compromised, eliminating the central point of failure that exists in single signature and multi-signature wallets. 

In addition, to add or remove members to a TSS wallet, it is as easy as adding new members to it or removing members from it. Compared to a traditional multi-sig wallet, where if you want to add or remove members, you have to create a whole new wallet since each member in a conventional multi-sig wallet is given their own private key. However, this creates problems. When each member of a wallet has a unique private key that is recorded to the chain, a transaction shows you which wallet addresses agreed to an exchange between two or more parties. Because wallet addresses can be tied back to in-real-life identities, removing a layer of privacy by signing each key to the chain can create physical safety issues.

TSS also has low computational complexity. This means the transaction fees on a TSS wallet are typically lower than other wallet implementations.

In summation, these elements make blockchain and cryptocurrency companies, especially crypto wallet providers, inclined to implement TSS into their protocols, platforms, and services.  

The Disadvantages of TSS

The primary disadvantage of TSS is that the technology is relatively new to cryptocurrency. This means that there may be weak points in the TSS methodology that have not been discovered yet

“TSS is relatively new and applies new cryptographic research from recent years. The interest in TSS has led to high-quality research, but like any technology out there, there always exists a possibility of not yet discovered attack vectors.” Said Senga. “Being an early adopter is a great opportunity for Swingby, but it comes with certain risks as well. The Swingby team needs to continuously do TSS related security research as mitigation, and we are actively engaged in pushing the applied uses of this technology forward.”    

The implementation of TSS in blockchain and cryptocurrency is relatively new, however, TSS has the potential to sunset many of the existing protocols that are used. Although it is early for TSS technology, there are many teams actively researching and stress testing TSS protocols to make sure they do not break or are susceptible to attacks. This gives many companies the confidence to start implementing TSS into their platforms and services, especially since the realized benefits of TSS outweigh the theoretical risks. 

The Future of TSS

As what might be the best way to scale and secure a cryptocurrency wallet, you can expect to see more blockchain and cryptocurrency service providers implement threshold signatures into their stack in the future. The way that threshold signature wallets fractionalize private keys, allow new (or old) members of the wallet to be added (or removed) easily, and reduce transaction costs, these benefits outweigh the fact that TSS is relatively new to the world of blockchain and cryptocurrency.

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