This post is a continuation of Wallets Overview and will focus on ERC-4337 Account Abstraction (AA). AA is a technology that streamlines and simplifies account management on the Ethereum blockchain by separating user accounts from the execution of their transactions. This development has evolved from Ethereum's early days to the present, aiming to increase flexibility and functionality for users. By abstracting accounts away, developers can introduce new features, enhance security, and improve user experience. Account Abstraction will greatly help your parents interact and use blockchain technology without them even realizing it because all of the complexity will be abstracted away. In this article, we will explore how AA works and the effects it will have on the industry.
To me, the most important concept about Account Abstraction is that it enables code and logic to be implemented at the contract layer, which is directly associated with identifying truth on chain. This means that the smart contract acts as the gatekeeper, validating transactions and ensuring that they are executed correctly. This is important because it allows for more flexibility in the execution of transactions and enables the development of more complex applications on the blockchain. By implementing code and logic at the contract layer, developers can introduce new features and improve security without having to make changes to the underlying blockchain protocol.
Where did AA come from?
The concept of account abstraction is not new. Vitalik Buterin proposed it in 2016, suggesting the abstraction of nouns and signature verification. Since then, we have seen EIP-86, EIP-2938, EIP-3074, and the latest, EIP-4337. The most recent EIP, ERC-4337, has garnered attention and has been implemented because it enables account abstraction without requiring changes to the Ethereum protocol.
What are the components?
ERC-4337 comprises three key components:
EntryPoint contract - coordinates transactions and validates them before they are executed. The EntryPoint Contract checks that the transactions are valid, and then sends them to the bundlers.
Paymasters - are entities that pay gas fees on behalf of users in the form of sponsored transactions. Paymasters may decide to cover transaction fees for various reasons, often due to the potential benefits for their business or platform.
Smart Contract Wallets - represent user identities on the blockchain and store their digital assets. Smart Contract Wallets enable users to interact with the blockchain and sign transactions without revealing their private keys.
In ERC-4337, users sign an intention that is sent to a mempool where a network of bundlers collect these operations to build a bundle. These bundles are then submitted as a transaction to Ethereum, orchestrated by a specific contract called the EntryPoint.
Bundlers compete to add transactions to blocks by offering fees. The fees for executing transactions on the fee market can differ from those on the mainnet, creating a spread. This difference presents an opportunity for MEV searchers to capture arbitrage, similar to how Flashbots captures MEV from transactions in the Ethereum mempool. Note: Even though this abstraction layer where the transaction gets ordered is another layer and another fee, the total fee paid by the user is either the same or less because the bundlers are able to condense many transactions creating a more efficient system.
New features that are coded at the contract layer
Multi-call - is a smart contract optimization technique that enables bundling of multiple Ethereum blockchain read-only calls into a single atomic transaction. This means that multiple read-only calls to smart contracts can be executed in one go, rather than having to execute them one-by-one, resulting in significant gas savings and reduced execution time. This will enable the user to experience a more seamless experience and not have to sign off on each step of a transaction.
Session keys - allows the use of multiple authorized keys to perform transactions for a specific time. This opens the door to build systems that allow for permission levels. It has already been implemented in Unchained games to build a more seamless frictionless playing experience.
Social recovery - is a security feature available in cryptocurrency wallets that enables users to regain access to their accounts in case they lose their private keys. By adding trusted friends, family, or organizations as Guardians to their accounts, users can protect their accounts from key loss or theft and control who can access the account and approve transactions. If a user loses their private key, they can contact their Guardians to initiate the recovery process. If a majority of the Guardians approve the transaction, the owner key is replaced with a new key, which the user can then use to regain access to their account. The benefits of using Guardians and social recovery include increased security, protection against key loss or theft, control over access, and flexibility in customizing the ratio of Guardians needed for approval.
Native value transfers - This compatibility broadens its potential use cases and addresses one of the limitations of ERC-3074. With native value transfers one can interact with older ERCs.
Pre-approvals - You can pre-approve transactions for a certain period of time, within a certain application. It’s like signing one transaction to last for a while and then being able to play or interact with the blockchain to your heart’s content.
Subscription models - have always been tricky on ETH, but ERC-4337 will allow for processing automated payments to be natively integrated in a streamlined fashion.
These can come in the forms of:
Monthly subscription model: A user could subscribe to a monthly plan that provides access to a specific set of ERC-4337 tokens for a fixed fee. This would allow users to easily manage their token portfolio without having to worry about transaction fees or other complexities of the Ethereum blockchain.
Transaction-based subscription model: Another approach could be to offer a subscription model based on the number of transactions a user makes with their ERC-4337 tokens. For example, a user could purchase a certain number of transactions per month or quarter, with additional transactions available for purchase as needed.
Tiered subscription model: Offers different levels of access to ERC-4337 tokens, with each tier offering a different set of benefits and transaction limits. This would allow users to choose the level of access and transaction volume that best fits their needs and budget.
Hybrid subscription model: Combines elements of the above models, offering users a range of subscription options based on their needs and preferences. For example, a user could purchase a monthly subscription for a fixed number of transactions, with additional transactions available for purchase as needed.
Sponsored transactions - Paymasters are entities that agree to cover gas fees for user transactions, acting as sponsors. They may decide to cover transaction fees for various reasons, often due to the potential benefits for their business or platform.
Reasons why companies would want to sponsor transactions:
Boost user engagement: Sponsoring transactions can encourage users to interact more with a platform, making it more enjoyable and accessible, and increasing adoption.
Attract new users: Covering gas fees can be a marketing tool for bringing in new users by lowering the entry barrier. It also takes away the pain of having the new user acquire ETH before using the product.
Improve user experience: By eliminating gas fee management, users can focus on the application's features, resulting in a smoother experience.
Support specific projects: Paymasters may sponsor transactions for a specific application, project, or use case that aligns with their interests, driving user adoption and visibility.
Alternative monetization: Paymasters can be compensated through other revenue streams, such as subscription fees, premium features, or token-based rewards.
Competitive advantage: Offering sponsored transactions can give a Paymaster an edge over competitors by providing a more cost-effective solution.
Encourage network growth: Sponsoring transactions contributes to the growth and development of the Ethereum ecosystem, benefiting all participants in the long run.
ERC-4337 sponsored transactions can greatly improve user experience and boost the adoption of Ethereum-based apps.
Easier account management: Users don't need Ether for gas fees with ERC-4337, letting them focus on an app's main features and making it more attractive to both new and experienced users.
Lower entry barriers: New users don't need to buy Ether for gas fees, thanks to sponsored transactions, making it simpler to start using Ethereum apps.
Less transaction complexity: Users don't have to worry about gas fees or managing Ether balances, making Ethereum apps more accessible and user-friendly.
Encouraging exploration: Users can experiment with different Ethereum apps, leading to increased engagement and the discovery of new use cases.
Aiding emerging markets: Sponsored transactions allow users in regions where Ether costs are high to access Ethereum apps without being held back by expensive transaction fees.
Innovation: Makes it easier and more affordable for users to engage with Ethereum apps, encouraging developers to create new solutions that benefit from a larger user base.
Network effects: Sponsored transactions can attract more users and promote interaction, increasing the overall value of the Ethereum ecosystem.
For account abstraction to become widespread, wallet developers and tooling providers must collaborate on developing common standards. Library and SDK developers also play a crucial role in providing better tools to dApp developers, which can help facilitate the adoption of account abstraction and smart contract wallets.
