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The broad acceptance of Decentralized Finance (DeFi) and Non-fungible Tokens (NFTs) on Ethereum and other blockchains has not yet materialised. The new ERC-4337 standard and account abstraction should now help to take the ecosystem to the next level. But what is behind it and how could it succeed?
Account abstraction simply explained
To understand why the new Ethereum standard is so interesting, one must first understand what account abstraction means. Imagine you have a classic wallet. Depending on what you want to pay with, you choose the right compartment. In many cases, however, the recipient only accepts certain types of payment. When paying by card, the amount to be paid often has to be above a certain limit. Cash is mainly accepted for small sums and vouchers can usually only be used at special dealers and under certain conditions.
Now imagine an upgraded version: your wallet is now a smart wallet. She only has one subject, but this subject can really do everything. It combines all your assets, whether physical or digital, in one wallet and adapts like a chameleon to the payment method you need at the moment.
How does account abstraction and ERC-4337 work on the blockchain?
The whole thing works in a similar way at the blockchain level. ERC-4337, enables account abstraction on Ethereum and really spices up ETH wallets by adding functions of Externally Owned Accounts (EOA) and “Smart Contract Accounts” cleverly combined.
An EOA is basically an individual account, like your bank account. You control it with your private key and can send and receive Ethereum or tokens (self-hosted wallets like MetaMask and Co.). A “smart contract account wallet”, on the other hand, is more like a wallet with a built-in assistant that simplifies interacting with apps and blockchain networks with the help of smart contracts. ERC-4337 combines these two wallet types into one.
To better understand the whole thing, think of a mobile gas station for decentralized applications (dApps). Imagine you have a car (your dApp) that needs petrol (gas on Ethereum) to run. Normally you would have to drive to the nearest gas station (exchange where you can buy ETH) to get fuel.
But with ERC-4337 it runs much smoother. You just place an order and boom, someone (a “Paymaster”) comes by and fills up your car right in your garage. In this analogy, your car is the dApp, the gas is the gas you need for transactions, and the “paymaster” is the ERC-4337 standard, which ensures that the gas is delivered directly to your dApp.
This makes operating Ethereum wallets much easier for users. All you need is enough funds in your wallet, and everything else – like swaps, buying and selling NFTs, creating wallets and paying fees – ERC-4337 will do for you automatically in the background with account abstraction.
These are the advantages of the new Ethereum standard
ERC-4337 offers a number of benefits that can greatly simplify the user experience when dealing with blockchain networks and NFTs in particular. Here are some of the key benefits of ERC-4337:
1. Gasless Transactions
Ethereum’s “gas crisis” is a well-known problem for many users in the crypto space. ERC-4337 allows users to conduct transactions without ETH or other cryptocurrencies in their wallets thanks to account abstraction.
Instead of paying ETH gas fees, enables this new standard users to conduct transactions without ETH in their wallets. One could also pay with other cryptocurrencies like USDC, DAI, WBTC, etc. An interesting way to attract new users who are new to the world of NFTs and cryptocurrencies.
2. Bundled Transactions
In addition, ERC-4337 allows multiple on-chain operations to be bundled into a single transaction. Imagine being able to transfer NFTs from one wallet to another while listing the ones you want to sell, all in a single transaction. This significantly reduces both the complexity and the duration of transactions.
3. Easier and safer Ethereum wallets
Another aspect that makes ERC-4337 stand out is the simplification of account management. Instead of dealing with a complex cryptographic key pair, you can now easily manage your wallets with your Apple or Google account. The recovery of your wallet? No problem, thanks integrated into a wallet Social recovery feature this is made possible by ERC-4337.
4. Temporary access to wallets and tokens
Finally, ERC-4337 allows the use of “session keys,” which are temporary keys that allow a wallet to interact with a given app in a specific way for a period of time. One can imagine session keys becoming very popular in the NFT gaming scene, where they can be used in combination with a game to ensure that one does not have to sign many transactions or worry about revoking token permissions later to have to.
5. Customization of wallet rights
Last but not least, ERC-4337 allows users to customize their accounts’ permissions. For example, one could require multi-signed transactions, only allow certain addresses to conduct transactions on their own behalf, or even restrict certain activities entirely. This feature offers NFT users and NFT-centric DAOs greater control over their on-chain accounts.
ERC-4337 has the potential to significantly improve the user experience when dealing with cryptocurrencies and NFTs. It offers benefits like simpler and more secure accounts, gasless transactions, bundled transactions, legitimate activities, and use of session keys. Therefore, through these features, ERC-4337 could lead to increased adoption of NFTs.
Overall, ERC-4337 offers many features that traditional banks typically offer their customers, all without the need to trust any financial institution. As a result, ERC-4337 could lead to a significant increase in the acceptance of NFTs. By making it easier to purchase, store, backup, and restore NFTs, the upgrade definitely marks another milestone on the road to mass adoption.
Although there is little information on the spread of the ERC-4337 standard so far, some wallet developers are already showing how stackup and MetaMask, interest in its use. However, it is clear that this standard has the potential to greatly simplify and enhance interactions with blockchain networks. It therefore seems likely that the standard will continue to spread throughout the Ethereum ecosystem this year.