Let’s face a simple fact — DeFi is a quickly evolving narrative that is likely to surpass all other systems. Some prominent crypto visionaries such as Binance CEO, Changpeng Zhao (CZ), crypto-focused venture capital firm Pantera Capital with its forecast on crypto for 2023, and the freshest Consensys global report unanimously claim that DeFi is the future of finance. CZ emphasized that one more time during the AMA session on Twitter.
However, while the idea of DeFi is clear as day, the mechanics behind and entry points are vague and remind of the Fata Morgana effect. According to the Consensys global survey, people are still confused and frightened of managing crypto and don’t know how to start.
All those top-notch features, an overwhelming variety of protocols, pools, strategies, and platforms, unfriendly UI/UX design, and just like a cherry on the cake — the security issues push people away from the DeFi market. Hardly surprising, puzzled users have no clue how to deal with that flow of information and difficult technologies, so even when they want to engage with crypto and DeFi in particular, they can’t do it. There is a huge gap between a Web 2.0 person and those who build Web 3.0 worlds, and there is something to bridge it — it’s an innovative blockchain technology called account abstraction. Account abstraction is the only solution for those who are accustomed to using Web 2 apps daily, it’s rather a great feat to overcome those obstacles and set foot in Web 3 and start earning wisely. This new, quickly-moving technology is the subject of many discussions in the crypto community. It’s only at the beginning of making its way but at a lightning-fast pace. Here comes a logical question — “What exactly is account abstraction and can it be useful for me?”
The Account Abstraction’s Musts Account abstraction (AA) is a technology that can expand the opportunities of crypto wallets, increase their security, and vastly improve user experience.
The AMS concept is implemented by the ERC-4337 standard, which was activated in March. It’s turning user wallets into smart contract accounts.
Many developers strongly believe that widespread adoption of the new technology will accelerate the transition from Web 2.0 to Web 3.o and attract “billions” of users to Ethereum.
Account Abstraction (AA) Explained If you keep your finger on the pulse then you’ve surely heard of Vitalik says implementing AA has been a long term “dream” for Ethereum developers. So, he’s made several proposals to do so. Maybe you’ve also heard that both StarkNet and zkSync, two leading Layer 2 solutions, have announced that they’ll launch with native account abstraction. Coming back to the agenda, account abstraction (AA) is a method of setting up a blockchain network in which user assets are stored exclusively in smart contracts, rather than in External Owned Accounts (EOAs). This approach makes the crypto wallet become a unique smart contract that can be programmed for various purposes.
In March 2023, Ethereum developers through EntryPoint smart contract, launched the ERC-4337 standard, which implements the concept of account abstraction and is compatible with all EVM networks like Polygon, Optimism, Arbitrum, BNB Smart Chain, Avalanche and Gnosis Chain. The solution went through the Open Zeppelin audit.
ERC-4337 allows users to turn their wallets into smart contract accounts to make Ethereum addresses more usable and prevent key loss.
This standard works on top of the existing system; significant changes to the blockchain infrastructure are not required for its full use.
EIP-4337 and ERC-4337: What’s the Difference? In 2021, Vitalik Buterin and others submitted EIP-4337, which introduces AA without any changes to the core Ethereum, meaning that there is no need for a fork.
As you can see in the picture above, EIP-e4337 is the most recent proposition and it can be an evolution of smart contract wallets. This creates user-friendly crypto wallet designs that could end with a broader adoption.
One important thing to note — EIP-4337 and ERC-4337 are not the same, but different. Here’s how.
Every technical change proposed to the Ethereum ecosystem initially starts as an EIP or an Ethereum Improvement Proposal. Once the on-chain governance model accepts, authorizes, and confirms the change, it becomes ERC or Ethereum Request for Comment.
So the change started as an EIP-4337 and has now turned into ERC-4337. Also, ERC is one element of the broader EIP space and primarily deals with protocol and development standards.
One of the most exciting new use-cases of ERC-4337 is the ability for existing web2 apps to embed wallets in-app. This will let the mainstream applications we use today easily connect to the blockchain ecosystem and integrate crypto-native features, thereby converting their users into web3 without them having to manually spin up wallets.
Like smart contract wallets, EIP4337 was designed to emulate AA without any change to the protocol. It separates EOAs’ actions such as transactions, which are currently performed as part of Ethereum’s core, and sends them to the Ethereum Virtual Machine (EVM) for better flexibility, scalability, and interoperability. The EVM is a runtime environment separate from the Core Ethereum, modifications can be made more quickly. The EVM abstraction allows AA to be used on other L2 blockchains, making it easier for them to communicate and collaborate.
Watch: Ethereum Foundation 🛠 Account abstraction: building an ERC-4337 wallet – Yoav Weiss, Dror Tirosh
Let’s draw an analogy. So, imagine your actual wallet with several sections for different stuff like plastic cards, notes, coins, coupons, etc. Every time you need to pay in cash you reach out for a cash section in your wallet, when you need a coupon, you’re looking in another section, and so on and so forth.
Now imagine your wallet is a smart wallet (account abstraction one). There is only one section with a payment mechanism that gets accepted as cash, credit card, or coupons. It’s flexible and thus, adapts to your needs.
The ERC-4337 is about to achieve:
Account abstraction: Users have a single account with functionalities of smart contracts and EOAs.
Decentralization: Empowers bundlers to participate in the process.
No consensus changes: Brings faster adoption as the Ethereum consensus layer focuses on scalability-oriented upgrades.
Creates new use cases: This could be such things like aggregated signature, daily transaction limit, emergency account freezing, whitelisting, and privacy-preserving applications. Save time and gas: Since bundlers can batch User Operation objects into a single transaction, it could save time and gas.
Smart contract wallets have two-factor authentication, which requires two different components to confirm a user’s identity, such as: a password; a phone; a fingerprint. This is a habitual web2 tool that provides an extra layer of security and prevents unwanted access.
Smart contract wallets are programmable. Imagine a situation — you’ve lost your original private key and can’t get access to your funds. In a pre-AA era, it was a real issue. But now thanks to a multi-sig transaction with predefined ‘guardians’ e.g. friends or relatives. This removes the need for the owner to store seed phrases.
Using APIs that support ERC-4337s, smart contract wallets create more flexible fee policies. By having this in an arsenal, developers can sponsor transactions on behalf of users and provide so-called gasless payments. Besides, this makes it possible for users to pay for gas in any ERC-20 tokens (e.g. USDT).
Smart contract wallets could be programmed the way making it possible to use a different signature scheme apart from ECDSA used in Ethereum by default. This signature scheme could be substituted with multi sig, social recovery, or a quantum-resistant option like Crystals-Kyber.
That’s a smart contract wallet’s ability to process more than one action in a single atomic transaction. Multicall enhances the current wallet paradigm where every transaction is confirmed separately. As a result, it takes longer to execute and makes an overall user experience less pleasant. Imagine you want to trade a token on Sushiswap, so you have to approve and wait for the transaction to be confirmed. Then you need to wait for the ‘swap’ transaction confirmation, and only then is the token exchange completed. Smart contract wallets batch everything and transform your operation into one atomic transaction.
Smart contract wallets can be set to recognize more than one valid signer, which could be used to set different spending limits for different signers. For instance, a user could add both their laptop and Ledger hardware wallet as signers, allowing transactions of up to 0.05 ETH through their laptop, but requiring that the hardware wallet be used for larger transactions.
Smart contract wallets empower users to allow or refuse one or more wallet addresses access to their account. Allowed addresses enable the user to grant access, and denied ones would block or deny accounts access. This improves security and gives users additional control over their account.
Multi-sig wallet support strengthens the security of transactions by requiring various people to authorize them. This makes it rather hard for a single person to steal funds or execute unauthorized transactions.
Overall, AA looks like the future of wallets making it much easier to interact with crypto and stop being afraid of losing a seed phrase. It’s another great step forward to the mass adoption of crypto. Just look at such projects as StarkNet and zkSync 2.0 that are actively implementing this AA feature.
Account Abstraction is still an idea that is in the air although some realistic proposals with its implementation are already in the market. What connection does Rivo wallet have with AA? You’ll find that out in our next article.
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This article is for information purposes only and is not intended to and does not provide tax, legal, insurance, or investment advice. You should consult an attorney or tax professional regarding your specific legal or tax situation. A reference to a particular investment or security, a rating, or any observation concerning an investment that is part of the article is not a recommendation to buy, sell or hold such investment or security, does not address the suitability of an investment or security and should not be relied on as investment advice.
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