Threshold Cryptography, MPC, and MultiSigs: A Complete Overview

Threshold cryptography is an increasingly prevalent method of encryption that involves multiple individual keyholders for decryption. Systems with one keyholder (i.e. the company CEO) inherently harbor a single point of failure. Threshold cryptosystems circumvent this issue by encryption with a public key followed by the distribution of the corresponding private keys to a set number of fault-tolerant systems (systems that continue to operate despite malfunctions). A predetermined minimum number of private keyholders (threshold number) must use their keys for decryption, thus, the breach of a single keyholder no longer jeopardizes the safety of the encrypted data. Threshold cryptosystems have a diverse array of applications, such as mitigating MEV (maximal extraction value) extraction, a typically malicious act where blockchain users manipulate transaction orders before confirming them on the blockchain for profit. Threshold cryptography prevents such manipulation by encrypting and hiding the details of such transactions. It offers a more energy-efficient (due to being off-chain) alternative to MultiSig and can be used in trusted setups or electronic votes. Furthermore, it can be coupled with techniques such as MPC (multi-party computation) where the raw data or values can remain protected by the threshold cryptosystem but can still be used for computation (e.g. finding the average). Threshold cryptography eliminates the single point of failure typically involved in multi-party systems and decentralizes the responsibility of decryption, offering a promising method of encryption for collaborative environments.