With the rise of cryptocurrencies like Bitcoin and Ethereum, more investors are looking into threshold cryptography as a new crypto investment opportunity. Threshold cryptography allows crypto keys to be split into multiple parts, with a minimum number of parts required to reconstruct the key. This provides additional security, as multiple parties are needed to access funds. However, threshold crypto also comes with tradeoffs. Here we examine the pros and cons of threshold crypto as an investment.
Threshold crypto provides enhanced security benefits
The main advantage of threshold cryptography is improved security. By splitting a crypto key into 5 parts and requiring 3 to reconstruct it, funds are protected even if 1 or 2 key parts are compromised. This is far more secure than a single private key. Threshold crypto protocols like Shamir’s Secret Sharing provide information-theoretic security, meaning the crypto scheme is secure even against an infinitely powerful adversary.
Threshold crypto enables new applications like multi-sig wallets
Threshold crypto allows for new types of decentralized applications, like multi-signature (multi-sig) crypto wallets. Multi-sig wallets require agreement among multiple parties to access funds, preventing a single point of failure. These wallets are useful for securing funds for organizations and enterprises. Threshold crypto is necessary to distribute signing authority across multiple parties in a secure way.
Implementations are still relatively new and experimental
While the theory of threshold cryptography has existed for decades, practical implementations are still quite new. Threshold crypto schemes have only emerged recently on blockchains like Ethereum and Polkadot. As a new primitive, threshold crypto is not yet widely adopted or battle-tested. Like any new crypto project, threshold crypto investments carry technology risk and uncertainty regarding long-term viability.
Usability can be complex for managing multiple key shares
A downside of threshold cryptography is managing multiple key shares becomes more burdensome from a usability standpoint. Users have to securely store and track multiple private key shares, which creates overhead versus a single key. This usability issue could hamper adoption among less technical users. Projects are working to abstract away complexity using smart contracts and other mechanisms.
Threshold cryptography brings important security benefits but comes with usability tradeoffs. As an emerging crypto primitive, threshold crypto merits investigation but carries uncertainty regarding mainstream viability long-term.