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05 December 2020

Multiparty computation: The Trojan Horse of crypto regulation

Multiparty computation: The Trojan Horse of crypto regulation


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MPC service providers usually present their technology as something that merely helps to secure transactions.

You could replace the sender’s bank with an MPC third-party service provider and replace the SWIFT system with the blockchain.

With a bank, the sender instructs the bank to release the funds; with an MPC provider, the sender and provider jointly sign the transaction.

One could make the argument that there’s a significant difference between banks and MPC providers not accounted for in this comparison: Banks can freeze funds and even confiscate them.

There is no argument here that MPC providers are just bad guys who want to rob their clients of their funds.

As reputable, professional companies working with institutions, they need to meet a primary demand from their clients — that crypto funds are recoverable if someone loses their key.

Furthermore, if MPC providers allow users to recover lost keys, it means that a regulator could also issue a demand to confiscate funds.

While overall compliance is still low, we can rest assured that the FATF will continue to widen the net until all Virtual Asset Service Providers are included.

While the crypto community’s focus has been on how exchanges will manage the FATF regulation, MPC providers also perfectly match the profile of a Virtual Asset Service Provider, which manages and transfers client funds in a similar way to a banking wire transfer.

If more evidence were needed, we only need to look at the big banks who have already recognized that MPC technology offers benefits that fit with their existing compliance frameworks.

The fact that MPC service providers limit the mobility of their customers by creating dependency on their own wallets could also prove to be attractive to banks, creating a kind of forced loyalty far removed from the vision of open finance that is held dear by many in the crypto space.

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