Right in the middle of the storm, while most of the world is panicking about both the banking and crypto world, I would like a moment to talk a fundamental development. Typically, when s*it hits the fan, the most valuable innovations go unnoticed as most people shift to “survival mode”.
I have another article in the making to unravel the whole madness around Silicon Valley Bank (SVB), Signature, and all of the bankruptcies we are seeing, still in the wake of FTX collapse. This might sound far-fetched, but guess who had large accounts at SVB? Well, our friends Alameda and FTX. But, I will keep this story for another time. Maybe when the dust settles a bit and we can figure out what actually happened.
The world is currently on the cusp of a major technological shift, and the adoption of cryptocurrencies and blockchain technology is playing a vital role in shaping this shift. I would even go as far as arguing that the current chaos IS a sign that the shift is actually happening already! What we are seeing in the world right now is just the world’s growing pain, similar to what kids experience in their growth spurt. Growth is usually uncomfortable. Because if it weren’t, you’d be there already, my friend. Whatever “there” means for you.
Anyhow, without further ado, let’s dive right into it: what is Ethereum Account Abstraction? And why should you care?
Mass Adoption Comes When the Alternative Is Better
Except for a few tech enthusiasts and early adopters, the majority of people adopts a new system when that becomes better than the options they have. Cars became better than horses when we invested in the infrastructure that made it possible to drive literally anywhere and fuel along the way. Before that, I bet you had people trying to figure out how to optimize horses for long-distance travel and c*ap like that we think as humans. Just like electric cars will become the norm the moment they are affordable by the average family, have a decent enough range, and we have invested in a solid infrastructure to either swap batteries of charge easily along the way. Hybrid cars are a nice band-aid for the transition period, but not the cure.
For the widespread adoption of cryptocurrencies to happen, applications on the blockchain technology need to be user-friendly, accessible, and convenient. In short, much better than the alternative.
In some countries it is already the case. Take Venezuela, for example. In a country where your local national currency has an inflation of 150% a year, Bitcoin is a stable coin in comparison. This reminds me of a saying in Brazilian Portuguese: “What is a fart to someone who has shat their pants”. 😉
We don’t realize this in Western Europe. To us Bitcoin is as volatile as it gets. But again, that is compared to the EUR, one of the most stable currencies in the most stable examples of a capitalist financial system.
But, the current process of using cryptocurrencies is far from being user-friendly, especially with traditional wallets, which require a private key to operate. This is where Ethereum Account Abstraction Update (ERC 4337) comes in as a game-changer.
Towards The First Billion Users
As long as people are required to write down a 12 to 24-word private key, use their Ledger Nano S cold-wallet, use DEXes to optimize gas fees, there is ZERO chance blockchain will go mainstream. Zero. Nowadays, we might think we have made insane progress in the way people can access cryptos. But the apparent progress we have made since 2017 is misleading. That entry point has been facilitated by a number of centralized organizations (typically brokers or exchanges) and that to me defeats the purpose crypto was initially intended for!
The reality is that the process to adopt crypto in a decentralized fashion is STILL very cumbersome. Especially if you want to do it in a safe way, with full custody of your assets. However, this is about to change since Wallet Con 2023 in Denver, Colorado.
This year Ethereum developers have announced the Ethereum Account Abstraction Upgrade: a smart contract technology with the potential of onboarding the first billion users on the Ethereum network.
The update makes it possible for the wallet to operate as a smart account, offering the same services and user experiences we would get from a bank. It eliminates the need for seed phrases, public, and private keys. The keys can be stored on hardware, and it is available for all layers 2, Smart Chain, and Avalanche, making it suitable for payments and money management.
All About Better User Experience
The current Ethereum network uses externally owned accounts (EOAs), which are traditional wallets that are controlled by private keys. However, these wallets have several operational security and user experience issues. For instance, private keys are easy to lose, not possible to recover, and hard to plan for deaths. Moreover, the private key-based user experience is impossible for the majority of the world to adopt.
Account Abstraction addresses these issues by introducing contract accounts, which are smart contract-controlled wallets that do not require private keys. Instead, contract accounts are autonomous agents that execute actions after receiving messages. This means that anything that can be coded can be utilized in a contract account, allowing for a variety of new functionalities.
Account Recovery
One of the key advantages of contract accounts is that they offer account recovery. In traditional wallets, if a user loses their private key, they lose access to their funds permanently. You might have heard of “Not Your Keys Not Your Fund”. Well, this is exactly what it means.
However, with contract accounts, users can retrieve their private keys through a social recovery system. This can be done through a group of trusted individuals or with a service provider.
Transaction Limits
With traditional wallets, users can send transactions of any value, which can result in accidental or intentional loss of funds. However, with contract accounts, users can set limits on the value of transactions that can be sent, reducing the risk of loss.
No Gas Fees
Batch transactions are another feature of contract accounts. This means that multiple transactions can be grouped together and executed as a single transaction, reducing gas fees and improving efficiency. For example, users can approve a swap and execute it in one transaction, rather than two separate transactions.
Gasless transactions are another advantage of contract accounts. In traditional wallets, users need to have ETH to pay for gas fees. However, with contract accounts, users can pay for gas fees in non-ETH tokens, making it easier for users who do not have ETH to interact with the network.
Permission Controls
Permission controls are also possible with contract accounts. This means that users can set permissions for specific actions, such as approving a transaction or changing the account’s settings. This can improve security by ensuring that only authorized individuals can access the account.
Privacy-preserving transactions are another feature of contract accounts. This means that users can execute transactions without revealing their account balance or transaction history to the public. This can improve privacy for users who do not want their financial information to be publicly available.
📰 Quick Summary
Ethereum Account Abstraction is a significant upgrade to the Ethereum network preparing the foundation for the first billion users. Ethereum Account Abstraction replaces traditional wallets with smart contract-controlled wallets. Contract accounts offer a variety of new functionalities, including account recovery, transaction limits, batch transactions, permission controls, gasless transactions, and privacy-preserving transactions. These are precisely the type of features users expect and more. After all, it is only when the alternative becomes better that mass adoption will follow!
My Final Thoughts
Ethereum Account Abstraction represents a significant step forward for the Ethereum network, enabling it to support the next generation of decentralized applications and paving the way for wider adoption of cryptocurrencies and blockchain technology. As the network continues to evolve, we can expect to see more innovative updates and enhancements that push the boundaries of what is possible with decentralized technology.
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Disclosure
These are unqualified opinions, and this newsletter, is meant for informational purposes only. It is not meant to serve as investment advice. Please consult with your investment, tax, or legal advisor, and do your own research.
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