If you're dipping your toes into the world of Ethereum, you might've come across the terms "Externally Owned Accounts" (EOAs) and "Smart Contract Accounts."
It might sound confusing at first, but it’s easy once you get the hang of it:
Externally Owned Accounts Explained
Externally Owned Accounts (EOAs) are your personal Ethereum accounts. They're your key to the Ethereum network and controlled by you. Most conventional crypto wallets use EOAs in their app.
Your private key (generated via seed phrase), like a password, gives you the unique authority to sign transactions with your account.
An EOA lets you send and receive tokens, approve transactions and interact with smart contracts on the Ethereum blockchain. While smart contracts can also hold and send assets and interact with other smart contracts, EOAs can't initiate activities without your input; you're the one calling the shots for every action.
This gives you full control, but can also make things complicated. If you want to provide liquidity on Uniswap, you have to approve 3 transactions. This ensures you always know what’s going on (especially if you simulate transactions with Fire). But there’s no automation, which can make it annoying to use more complex strategies like dollar-cost-averaging or yield farming.
Smart contract accounts make that easier.
How Smart Contract Accounts Work
Smart contracts are not only autonomous pieces of software, they can also hold assets. This makes them uniquely capable to power complex, decentralized financial applications like lending protocols.
But thanks to a new standard called ERC-4337, they can now also transform what web3 wallets are capable of.
Unlike EOAs, smart contract accounts can autonomously execute code, meaning they can perform specific actions when they receive transactions, approvals or other external input.
Smart Contract accounts are different. They separate the private key from the account. That gives them more autonomy because the private key isn’t required to sign every single transaction or approval, which means they’re less dependent on humans and can be more autonomous.
Latest Upgrades: ERC-4337 and ERC-1271
ERC-4337 and ERC-1271 are two standards that enhance Ethereum accounts and power them.
ERC-4337 created a new standard for smart contract accounts, which has the potential to transform Ethereum UX. It also introduces innovation to the “mempool2, but if you’Re interested in the technical details we recommend reading the proposal.
Meanwhile, ERC-1271 adds an extra layer of security to Smart Contract accounts. It enables these accounts to authenticate and verify digital signatures, adding a new layer of security to these accounts.
If ERC-4337 gave EOAs the powers of smart contracts, then ERC-1271 gave smart contracts the powers of EOAs.
Comparing EOAs and Smart Contract Accounts
The main distinction between EOAs and Smart Contract accounts lies in their levels of control and functionality. EOAs are straightforward, controlled by the user. The introduction of ERC-4337 allows them to access the functionalities of Smart Contract accounts.
Smart Contract accounts, enhanced by ERC-1271, are capable of handling complex tasks and authenticating digital signatures. They increase their functionality and offer added security.
One important thing to note is that only EOAs can initiate transactions. Smart Contract accounts can't start transactions; however, they can respond to incoming ones by executing their programmed code.
In Conclusion EOAs and Smart Contract accounts, augmented by ERC-4337 and ERC-1271, are central to your interaction with the Ethereum network. They reflect the spectrum of user-managed and automated modes of operation, continually evolving to provide a smoother and more secure Ethereum experience.
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