A subtle yet significant revolution is transforming the way new users are onboarded in crypto, all without drawing much attention. About a year ago, FSL introduced keyless wallets in StepN and GasHero, and today, they are being implemented widely across the industry.

Keyless wallets are crypto wallets that eliminate the need for seed phrases. They utilize multi-party computation (MPC) technology to secure private keys, distributing security across multiple parties rather than relying on a single key. This approach simplifies the user experience, allowing individuals to manage their assets without the worry of forgetting seed phrases.

A key feature of keyless wallets is their use of advanced cryptographic techniques, such as threshold signature schemes (TSS). This method ensures that no single complete key is solely responsible for securing assets. Instead, multiple key shares collaborate to authorize transactions only when necessary, offering a practical solution that balances security and usability.

Security Concerns with Keyless Wallets

Although keyless wallets offer enhanced usability and protection through advanced cryptographic techniques, they are still not as secure as cold storage options. Cold storage, which involves keeping private keys offline and requires a seed phrase for access, remains the gold standard for safeguarding large amounts of cryptocurrency. By being completely disconnected from the internet, cold wallets are immune to hacking attempts, phishing attacks, and other online threats.

Keyless wallets, on the other hand, are considered "hot" wallets, meaning they are connected to the internet, similar to the already known custodial wallets. While the multi-party computation (MPC) technology distributes private key security across multiple parties, the fact that key shares are still accessible online introduces a level of vulnerability. Even with the added protection of threshold signature schemes (TSS), keyless wallets cannot completely eliminate the risks associated with being online.

So Why Choose Keyless Wallets?

While keyless wallets may not match the security of cold storage for long-term asset protection, they offer clear advantages for everyday use. Their primary strength lies in convenience and accessibility. By eliminating the need for seed phrases, keyless wallets simplify the onboarding process for new users, reducing the friction often associated with managing crypto assets.

For most users, especially those handling smaller amounts of cryptocurrency or engaging in frequent transactions, keyless wallets strike a balance between security and ease of use. The distributed security of multi-party computation (MPC) and the advanced cryptographic methods employed ensure that even though they are connected to the internet, they remain a safer option than many other "hot" wallet alternatives.

Also, this solution fundamentally addresses one of the most significant user challenges in the crypto space: the inability to recover a private key if it is lost. In traditional wallet systems, losing access to a private key or seed phrase often leads to a permanent loss of funds. However, keyless wallets mitigate this risk by distributing ownership of the private key among multiple parties. This means that even if one key share is lost or compromised, the remaining shares maintain the security of the assets, allowing for recovery options that were previously unavailable.

Summing Up

Choosing the right cryptocurrency wallet is crucial for achieving a balance between security and convenience. Cold wallets provide maximum security by keeping private keys offline and utilizing a seed phrase, but they can be difficult to use and may complicate transactions. In contrast, traditional custodial wallets simplify access to funds by managing private keys on behalf of the user, though they may not offer the same level of control and security. For those seeking a middle ground between security and ease of use, keyless wallets are an excellent choice. They employ multi-party computation to distribute security risks and enable recovery options without the complexity of traditional seed phrases, effectively combining safety with user-friendliness.

Will this new approach drive a wave of mass adoption? It likely won’t do it alone. While keyless wallets significantly enhance user-friendliness — one of the key trends in crypto in recent years — other areas of the industry are also adopting these principles. Together, these efforts are already making cryptocurrency more accessible to a wider audience.