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Examples of Ethereum Account Abstraction: The Next Evolution of Wallets?

By The Fire Team
Account abstraction use cases including no seed phrases and sponsoring gas.

Examples of Ethereum Account Abstraction: The Next Evolution of Wallets?

One of the most common criticisms of crypto is how difficult web3 is to use. In web2, you can sign up to a new app with your email address, come up with a password and you’re in. 

In web3, you need to download a Chrome extension, guard 12 secret words with your life, pay for every transaction and sign messages you don’t understand (download our Chrome extension to make transactions crystal clear). 

But we in web3 know difficult UX inhibits web3 adoption. So far, simplifying web3 has always been at odds with the ideal of a decentralized, user-owned internet. That’s changing now. The Ethereum ecosystem is witnessing a new evolution in the form of account abstraction, often underpinned by ERC-4337

The proposal outlines the technical aspects of account abstraction, but we’ll leave the technical stuff to the technical people. Instead, this article dives into this innovative concept, explores its use cases and shows you how it makes web3 simpler and safer. 

Let’s dive in! 

Account Abstraction Explained: How it works on Ethereum

Let’s start with the basics. Account abstraction on Ethereum is a revolutionary protocol upgrade that transforms the way users interact with their wallets. It infuses the wallet with the capabilities of smart contracts, giving users unprecedented control over their transactions and wallet security.

Account abstraction revolves around ERC-4337, an Ethereum Improvement Proposal that extends wallets' capabilities beyond signing transactions. Those capabilities include gas sponsoring, batch transactions, batch approvals, batch revoking and much more. 

Account abstraction aims to replace something called externally owned accounts (EOAs). Conventional crypto wallets work based on these EOAs, which require an external actor (the wallet’s owner) to approve everything the wallet does. 

It’s a bit like having a financial advisor who asks your permission for every transaction they do, even when it’s buying new pencils for the office. Of course, It assures you that you’re in control, but it quickly gets annoying. That’s what account abstraction aims to fix. 

Account abstraction is still in its infancy. While smart contract wallets are starting to pop up, a revolution in web3 UX will also require the buy-in of dApp developers who build with the new standard(s) in mind.

6 Ethereum Account Abstraction Use Cases

After we’ve explored what EIP-4337 does, here are some wallet features it could unlock in practice:

1. Goodbye Gas Fees? How Gas Sponsoring Makes Crypto Transactions Cheaper (or even Free)

One of the most exciting features of account abstraction is transaction sponsoring. Gas fees on Ethereum can be expensive, especially during periods of high network congestion. 

Gas sponsoring allows another entity, typically the application or a third party, to pay for the gas fees on behalf of the user. This not only makes transactions cheaper for the user but, in some cases, completely free.

Let’s use an example: 

Transaction simulation of Ethereum transaction showing an NFT trade with Ethereum gas fee. Describing the fee could be sponsored with gas sponsoring under account abstraction on Ethereum.

A new layer 2 protocol might want you to see how fast transactions settle on their network. Maybe you’re curious to try it out, too. But as you try to bridge some ETH over, you see the transaction would cost you $40. Is trying out a new network worth $40? Probably not. 

Previously, the network could only hope you’d pay the gas to try it out (or hint at an airdrop which will pay it all back). With account abstraction wallets, the protocol could pay the gas fees for you from its marketing budget. This makes the transaction free for you. 

This makes web3 far simpler because it reduces the barrier to getting started—and enables new users to make on-chain transactions without the complexity of signing up to an exchange and withdrawing to their wallet. 

2. No More Seed Phrases: Never Lose Your Wallet With Social Recovery

Losing a seed phrase can be a catastrophic event for any crypto holder, leading to the irretrievable loss of assets. 

Account abstraction introduces the concept of social recovery, which allows you to recover their wallet through trusted social connections. 

Instead of having to remember or securely store a seed phrase, you can designate trusted contacts who can collectively help them regain access to their wallet if needed. 

The contrast is stark: Before ERC-4337, losing your seed phrase or private key meant your funds were forever lost. Not even a billion dollars could bring it back. Now, it’s possible to have your mom, dad and best friend sign a blockchain transaction and get your wallet back. 

Technically, the signing wallets for the recovery don’t have to be other people’s. You could also have other wallets you control (e.g. a hardware wallet in a safe deposit box) as signers to your wallet recovery. 

You can imagine it similar to two-factor authentication: When you log into an app and have to confirm your sign-in with another device, it adds a layer of security.

3. Automating Transactions: Set up Automated Buy and Sell Orders

With account abstraction, wallets can now automate transactions such as buying and selling of assets. For example, you can set up a dollar-cost averaging (DCA) strategy directly from your wallet. If you believe in the long-term growth of Ethereum, you can automatically buy Ether every month without having to remember to buy. 

You could also set up “limit orders”: 

  • Buy an NFT as soon as the collection’s floor price drops to your desired price
  • Sell a memecoin as soon as its price hits the price you’d like to sell at

The wallet will automatically buy a predetermined amount of cryptocurrency at regular intervals, thus helping to mitigate the risk of price volatility.

4. Batch Transactions: Make Complex Transactions in a Single Click

Batch transactions are another powerful feature enabled by account abstraction. Instead of making multiple transactions individually, users can bundle multiple operations into a single transaction. 

This is particularly useful when interacting with DeFi protocols like Uniswap, where users often need to approve tokens, provide liquidity, or perform other complex operations.

Right now, if you wanted to provide liquidity on Uniswap, you’d have to set up your numbers off-chain and then sign 3 transactions: 

  1. Approve use of token 1
  2. Approve use of token 2
  3. Approve transactions to deposit tokens

Using account abstraction, you can reduce this to one click. 

Comparison image showing difference before and after ERC-4337 account abstraction on Ethereum for providing liquidity to a liquidity pool.

The same approvals and transactions still happen in the background, but you don’t have to approve every single one.

Before account abstraction, transactions were a bit like going to a restaurant and having to pay separately for every single thing you ordered. With account abstraction, it’s like swiping your card once and paying the bill. In both cases, the outcome is the same, but one is far more convenient.

5. Enhanced Security With Batch Token Approval Revoking

Security is paramount in the crypto space—and many scams are enabled by malicious approvals.

Account abstraction provides an added layer of protection with the feature of batch token approval revoking. Users can revoke multiple token approvals in one go, ensuring that no malicious entities can take advantage of unchecked token allowances.

In practice, this means being able to revoke access to all of your assets as soon as a dApp gets exploited. That way, web3 makes it far less likely you’ll get scammed in web3.

6. Spending Limits: Stop Giving Unlimited Token Approvals

Account abstraction introduces the concept of spending limits. Currently, when interacting with a smart contract, you often have to give unlimited token approvals, which poses a significant risk.

With account abstraction, you can set a spending limit on token approvals, which further enhances your wallet security. Even in the worst case scenario, you’ll never lose more than you needed for a specific transaction.

Account abstraction also enables spending limits in single transactions or time periods. That could mean a setting that keeps your wallet from making any transactions which move more than a given amount, say $500.

That way, even if a scammer gets access to your wallet, they can’t move all of your assets in one transaction. you could also cap transactions per day, week or month. If you never make more than 5 transactions in a week, you could limit your wallet to 5 weekly transactions—that would keep a bad actor from taking all of your assets.

Spending limits get even better when combined with multi-signature capabilities: You could require a second (or third, fourth, etc.) signature for any transactions over a given dollar or ETH amount.

In practice, that might mean your wallet can move up to $100 with a single signature, but anything above that requires your best friend’s signature (or your hardware wallet’s).

If you’re exploring Ethereum, check out Fire!

We’re a trusted chrome extension that simulates transactions before you sign any potentially malicious smart contract.
Check it out
To Summarize

Account abstraction, as facilitated by the ERC-4337 standard, presents a significant evolution in how we interact with crypto wallets. It not only empowers users with greater control over their transactions and security, but it also enhances the user experience by making transactions cheaper and more efficient.

From gas sponsoring to social recovery and automated transactions, account abstraction is redefining the capabilities of Ethereum wallets.

That could also look like a layered approach to your accounts: Instead of juggling multiple wallet providers, hardware wallets and more, you could have multiple sections within one wallet: 

  • A vault that holds your most valuable NFTs and can only move assets when your other wallet also signs the transaction
  • A savings account that stores your tokens and regularly buys new crypto on autopilot
  • A spending wallet you use for your everyday transactions like sending ETH, trading NFTs, etc. 

These are only a few examples of what could be possible with account abstraction wallets in the future—and only one direction to go into. For business purposes, we could see different accounts for different departments and differing layers of security and access.

The era of smart contract-powered wallets is here—and their adoption is growing slowly but surely. While few wallets leverage these new capabilities so far, we’re already seeing the first smart contract wallets implement account abstraction use cases like spending limits and paying gas from stablecoins. We’re excited to see what the future brings for smart crypto wallets!