MPC vs Hardware Wallets for GDPR-compliant Data Handling

Key Advantage: Private keys are never stored whole. MPC splits them into shares, allowing for secure deletion of individual shares to render the key unrecoverable. This directly supports GDPR's Article 17 'Right to Erasure' by providing a cryptographic proof of data destruction. Ideal for protocols handling user PII linked to on-chain identities.

Key Advantage: The private key is generated and stored entirely on a user-owned device. This provides clear data sovereignty (Article 20) as the user is the sole data controller. No third-party server ever holds key material, simplifying compliance narratives for applications where users must fully control their identity data (e.g., decentralized identity protocols like Verifiable Credentials).

Key Advantage: Enables programmatic, policy-based key management. Access policies and deletion workflows can be automated via APIs (e.g., using services like Fireblocks, Qredo). This is critical for enterprises managing thousands of user wallets, where manual key rotation or deletion via hardware tokens is operationally impossible. Supports automated compliance at scale.

Key Advantage: The security model is easier to audit and explain to regulators. The attack surface is confined to a physical device (e.g., Ledger, Trezor). For GDPR, demonstrating that personal data (the key) never left a user's possession can simplify Data Protection Impact Assessments (DPIAs) and reduce liability scope compared to a multi-party computational system.

Key Advantage: Recovery and authorization policies (e.g., 2-of-3 shards) are enforced by cryptographic protocols, not physical possession. Enables GDPR-compliant delegation (e.g., heir designation) and automated compliance workflows without exposing raw private key data to any custodian.

Key Advantage: The user is the unambiguous data controller and processor. The private key, as personal data, resides solely on a device they physically possess. This simplifies GDPR accountability and audit trails versus MPC's distributed model involving multiple potential processors.

Offline private key storage: The private key is generated and stored on a dedicated, air-gapped device (e.g., Ledger, Trezor). This means zero personal data is transmitted to or stored by the wallet provider for key generation. This directly satisfies GDPR's data minimization principle, as the provider cannot be a data controller for the key material.

Recovery phrase creates personal data: The 12/24-word mnemonic is a critical piece of personal data. If stored digitally (photo, cloud note) or written down, it becomes a GDPR liability. Physical loss or theft of the device also triggers data breach considerations under Article 33, as the private key (personal data) is physically compromised.

Distributed key sharding: MPC (Multi-Party Computation) wallets (e.g., Fireblocks, Zengo) split the private key into shards held by multiple parties (user device, cloud, trusted entity). No single party holds the complete key. This eliminates the risk of a single physical device breach and simplifies compliance with security-by-design (Article 25). Key generation can be non-custodial without transmitting full secrets.

Relies on service provider infrastructure: At least one shard is typically managed by the MPC provider's cloud service. This makes the provider a data processor (or co-controller) for cryptographic shards, requiring strict Data Processing Agreements (DPA). It introduces jurisdictional risk if provider servers are outside the EU, complicating GDPR's data transfer rules (Chapter V).

Definitive data destruction: Exercising the right to erasure (Article 17) is straightforward: physically destroy the device and securely dispose of the paper backup. The data (private key) is conclusively erased from the controller's (user's) possession, with no residual shards held by third-party processors.

Policy-based governance: MPC platforms integrate transaction approval policies (M-of-N signatures, whitelists) that log access attempts. This creates an immutable audit trail for demonstrating compliance with security obligations (Article 32). Access revocation (a form of erasure) can be executed instantly by deleting shards, without replacing physical hardware.