31. What are Threshold Signatures, and how do they work?

Threshold Digital Signatures, or threshold digital signatures. They make our cryptocurrencies more secure than ever before. In today’s lesson, you’ll learn how they work.

Threshold digital signatures – what are they?

With the development of cryptocurrencies and their growing popularity, keeping your digital assets safe is even more important. Protection, keeping private keys from unauthorized access, is essential.

Threshold Signatures Scheme (TSS) is a cryptographic signature that takes security to the next level. It is gaining popularity among all sorts of cryptographic service providers. It provides a more secure flow of information and does not interfere with external parties (hackers and phishers).

How does the Threshold Signatures Scheme work? (TSS)

Before going into a detailed discussion of how threshold signatures work, we need to recall some critical concepts from the world of cryptocurrencies. We will start with the concept of public key cryptography. This is nothing more than an encryption system that uses mathematically related keys in its operation – a public key (used for encryption) and a private key (used for decryption of information). The public key can be freely shared, while the private key must be secured and kept secret. Only its owner is to have the privilege of decrypting the information.

The pair of keys discussed above are created when generating a new cryptocurrency wallet. The public key creates a wallet address for us, and the private key creates a digital signature and verifies transactions for us.

So you see that digital signatures are used to digitally verify a message, a transaction, or even a document. This is a very fundamental part of blockchain technology. The digital signature scheme itself consists of three basic steps:

1. Generate a key – create a pair of public and private keys.
2. Signature generation – the private key along with the transaction generates the signature.
3. Verification – the verification algorithm checks whether the signature is valid.

Threshold signatures

They produce the same result as digital signatures. The difference is that threshold signatures in their operation will use MPC to establish an interactive multilateral protocol. All this to generate a private key and create a single digital signature. How does it work?

1. We replace the key generation and signature with the MPC protocol.
2. The key is generated only when “x” parties share “y” times the private key. This is done in a shared manner. As a result of such action, no smaller group has information about the key. At the same time, a public key is generated at this stage, which only shares the private key.
3. Signature. It is created only when “x” parties agree to sign the transaction.
4. Verification. Here, too, the algorithm uses the public key along with the transaction and verifies that the signature remains unchanged.

The entire process uses input data that is independent of the parties involved. At the end, a single private key and a single signature are created. For these two reasons, threshold signatures provide us with far more advantages than a simple digital signature.

Multi-party Computation (MPC) – definition

Threshold signatures work closely with MPC (Multi-party Computation). It is defined as a subdomain of cryptography, which focuses on the input data while ensuring that the input data remains private.

MPC takes a set of “x” pages and generates one key share on the device of each side of the process. This ensures that the entire key never exists in any system. In turn, this makes it difficult to steal such a key. In addition, the system determines a subset of “y” parties that must sign the transaction for it to be executed.

Every MPC project must meet:

1. Correctness function – is the output of the algorithm correct?
2. Privacy function – the input of each party must be kept confidential. No possibility of disclosing them to other parties.

As a result of using the MPC protocol, we create a single signature between multiple parties, which we use to authenticate messages and transactions. Now that you know how MPC works, you will easily understand the operation of threshold signatures.

Advantages of using threshold signatures

1. Greater security. It is much harder for an attacker to gain access to a cryptocurrency wallet that uses threshold signatures. There is no room for a single point of failure here.
2. Privacy. The MPC protocol, which interacts closely with signatures, does not require participants to disclose their secret participation to others. To recap – each party’s input is kept confidential.
3. Flexibility. We can modify the set of thresholds.
4. Efficiency and lower costs. Only one signature is generated per transaction. As a result, the threshold signature transactions themselves are completed in milliseconds. And because only one signature is verified, additional verification fees are avoided.

Alternatives

As it happens with digital signatures and cryptocurrencies – we can use alternatives. We will not specifically focus on them – this is a topic for a separate lesson. We will just tell you what the possibilities are.

1. MultiSig. A signature scheme that requires multiple participants to authenticate a transaction. However, instead of using secret shares of a single key, it uses multiple keys that create multiple signatures. We then have the distributed nature of signature creation. Moreover, MultiSig uses an on-chain process. This means that the number of participants involved in creating the signature, is publicly visible on blockchain.
2. Shamir, specifically Shamir Secret Sharing Scheme (SSSS). It functions very similarly to TSS. However, it features a single point of failure. SSSS uses a “Dealer” to generate the entire key. Then, in the signature phase, we have a reconstruction of the entire private key. Worst of all – in a single location. This reduces the security of the entire signature scheme.

Summary

The signature threshold scheme was actually created recently, but we can already see that it will be an important part of the transaction and blockchain itself. It will certainly have its five minutes in the future. Especially since the interest in cryptocurrencies itself is growing, and thus the focus should be on increasing security.