One of the biggest challenges to crypto adoption is the annoying wallet creation process, which requires you to write down a series of seed phrases you'll need to log in or recover your account. In addition, the types of transactions possible in crypto are limited compared to those possible in existing systems, let alone the places you can use crypto as payment.
While this has been the case for a long time, things are about to change.
The Ethereum development community has been working on ERC-4337, a new Ethereum standard that makes crypto wallets more user-friendly with better functionality.
What Is ERC-4337, and How Does It Work?
ERC-4337 is a standard for Ethereum that aims to make user accounts work more like smart contracts, a phenomenon called "account abstraction."
Currently, creating a wallet and using it can be complex for people venturing into Web3. We have to use externally owned accounts such as Metamask and Coinbase Wallet to interact with blockchain-specific smart contracts.
Processes such as securing seed phrases and making transactions are a bit fiddly in our digital age. In addition, the lack of user-friendly security features could easily deter users, considering the precarious state of the crypto space.
ERC-4337 introduces a standard interface for the Ethereum network's deposit contracts, which allows different applications and wallets to interact with smart contracts in a standardized way.
It makes the wallets act as breathing, self-executing smart contracts, i.e., as efficient as hardware wallets with a cleaner UX and multiple account recovery options, more secure and censorship-resistant.
With a simple code update of a wallet, you can expand its functionality to handle multi-factor authentication, make and sustain transactions, and perform multiple tasks.
In essence, ERC-4337 brings the convenience of banking systems to the blockchain. According to CoinTelegraph, Ethereum Foundation security researcher Yoav Weiss said:
It gives you the same features a bank would without having to trust a bank.
What Problems Does ERC-4337 Solve, and What Are Its Use Cases?
ERC-4337 irons out a number of common cryptocurrency problems.
1. Complicated Process of Setting Up Wallets
This is one of the biggest barriers to crypto adoption. No one today enjoys typing or writing down a seed phrase containing 12 or 24 words, which they know, if lost, will prevent them from accessing their crypto assets.
With ERC-4337, you'll be able to open an account on your smartphone using only a fingerprint or face scan. If you think about it, an intuitive account opening process that takes less than 30 seconds is a great incentive that could pull the next billion crypto adopters.
2. Security Risk of Smartphone Wallets
The current system of using smartphones as hardware wallets presents a security risk. First, the security module uses a cryptographic signing system different from the one used in crypto. Also, they come with the risk of being hacked or tricked into making transactions.
ERC-4337 enables easy communication between the two cryptographic systems, which enhances security. More importantly, it enables you to set up two-factor authentication for transactions and spending limits.
3. Social Account Recovery
Another problem in crypto is the lack of account recovery options on most platforms. As a result, if you lose your seed phrase, you're toast. Isn't that a sad state in a world where losing a phone is a common incident?
Account abstraction helps you regain your seed phrases if lost, so you can recover your hard-earned crypto assets. This will be made possible through a time-locked recovery process (around four days) that involves a group of trusted friends or a commercial service.
With more improvements, you'll soon be able to recover your account in the normal "forgot password" style.
4. Zero-Gas Fee Minting
One major deterrent to NFT adoption are NFT minting fees, which can range from a few cents to hundreds of dollars depending on the blockchain. For instance, if you're a DApp developer who wants to allow some test subjects to try your app, your experiment will be limited by how willing your test subjects are to incur gas fees.
With ERC 4337, it's possible to allow users to go gas-free for a certain period, say 30 days, using a paymaster. A paymaster is a smart contract that executes logic to decide whether or not it should pay for transactions for its users.
Using paymasters, you can sponsor users while having the gas fee extracted from an address you set upon confirmation of the logic. As such, zero-gas fee minting makes it easier for people to try your DApp or new NFT project.
5. Repetitive Approval of Transactions
Lastly, ERC-4337 will enable crypto users to do away with iterative low-value transaction approvals. This feature is particularly valuable to gamers who need to use their tokens across sessions and crypto traders who need to be hands-on with collecting and trading crypto assets.
As for gamers, you can load a simple piece of code into your account, for instance, to automatically perform a transaction based on your terms and session keys. Meanwhile, automating trading by setting monthly limits and adjusting yield farming positions with the help of AI will make trading easier and more accessible.
These are just some of the major issues ERC-4337 solves, but there could be more.
What Does the ERC-4337 Upgrade Mean for Crypto Users?
ERC-4337's integration into Ethereum is a great deal for the blockchain's users, the EVM-compatible chain ecosystem, and the whole crypto space. For crypto users, it means:
- Easier cryptocurrency adoption
- Ability to recover accounts
- Bundled transactions which come with lower gas fees
- Pre-approved transactions
- DApps can sponsor gas fees for uses
In addition, considering its potential, it might cause a little frenzy among crypto investors. By virtue of making wallets better, i.e., smart wallets, it signals more possibilities, which means more people might get on board.
On the other hand, introducing more complex terminologies such as "account abstraction" will mean regular people may find the space too complex to venture into unless a simpler way to demystify the concepts is available.
Ethereum ERC-4337 Will Boost Crypto Adoption
ERC-4337 transforms a complicated digital bankless payment system into a simplified one that most people can relate to and thus be open to adopting. As such, it's a pretty powerful proposition for the next generation of crypto adopters. While most current users would be bullish about it, we can only wait and see where it takes us.