The marketing in our industry surrounding HSM and MPC technology has resulted in confusion and an unnecessary sense of competition. HSMs and MPC are orthogonal to each other. They both do different things and are often used in combination. One is not “better” than the other, instead, each fills a role in a specific use case.
MPC is a method of bringing together shards to sign a transaction and has advantages over the classic multi-signature (“multi-sig”) signing. MPC is used in case the client wants to hold a part of their private key (a “shard” or a “share”), in addition to the part(s) held by the custodian. Copper says that the client and the custodian can have one shard each while the client’s law firm can have one more, for example. This process prevents the custodian from misusing the key, making it impossible to steal the key from either party. However, it tends to increase the total responsibility for the safekeeping of the key.
HSMs are the hardware that allows the safe and controlled decrypting of private keys. Industry experts often advertise HSMs as a better “cold storage” since HSMs enable faster decryption of private keys and increase real-time access to assets. Biggest “drawback” of HSM, MPC marketing says, is that keys are held in a single central location and can be used to sign transactions that they shouldn’t be signing — hence the custom business logic that requires biometric authentication.
In short, HSMs are great if managed securely but require caution around the interaction with the HSM (telling it when to sign transactions). MPC allows you to diversify keys in different locations but requires many instances of secure custody of the pieces. MPC might improve security but increases the risk of losing shards as they still need to be custodied somewhere.
For investors who trust their custodians fully, it does not make sense for the latter to use MPC as the client does not own any part of the private key. Finoa mimics the multi-user-approval feature of MPC without the risk of losing a key shard by using logic built on top of the HSM.