Smart contract wallet is the future of Web3 wallets.
By: Wendy
Currently, there are nearly 5 billion global Web2 users, while Web3 users are only 400 million, making Web3 still a niche industry. As an entry-level application, the popularization of Web3 wallets will help Web3 achieve large-scale applications.
On August 2, OKX announced the launch of the AA smart contract wallet, which may change the blockchain industry forever and lower the barrier for internet users to enter Web3.
Ethereum founder Vitalik Buterin has emphasized multiple times that smart contract wallets are the future of Web3 wallets. In addition, in his summary speech at the EthCC conference, Vitalik Buterin emphasized that future account abstraction (AA) will make encrypted wallets as simple as email. In the Ethereum 2.0 roadmap, account abstraction (AA) is placed at the same directory level as merge and sharding, indicating the important position of account abstraction in the Ethereum ecosystem.
Introduction to Web3 Wallets
Setting aside the concept of Web3, in essence, Web3 wallets are no different from WeChat and Alipay in terms of their attributes; they are payment tools. With this basic reference, it is easy to understand Web3 wallets. Web3 wallets are mainly used for receiving, storing, managing, and transferring digital assets, as well as exploring DApps, and more.
If we reintroduce concepts such as decentralization to Web3, the biggest change in Web3 wallets compared to traditional payment tools is that they allow users to control their private keys and assets completely, eliminating the reliance on third-party intermediaries such as banks and financial institutions. In other words, even in the event of a black swan event like the collapse of a Silicon Valley bank or doomsday, your assets will still be in the Web3 wallet, controlled by the private key.
Each Web3 wallet corresponds to a unique private key that cannot be modified. The private key is a 64-character hexadecimal string composed of letters and numbers, simplified into a 12-word mnemonic phrase for easy memorization and recording. Therefore, the private key is crucial; whoever controls the private key controls the assets. The control of the private key has led to the emergence of three types of wallet, including custodial wallets, hybrid custodial wallets, and non-custodial wallets, where the private key is respectively controlled by the user, the user and a custodian, or the user alone. Currently, mainstream wallets such as Metamask and OKX Web3 wallet belong to non-custodial wallets (also known as self-custodial wallets).
Although non-custodial wallets return asset control to users, they face many pain points such as difficulty in memorizing mnemonic phrases, limitations in GAS payment methods, and complex operation processes, which are significant obstacles for new users. In order to address these issues, wallets represented by OKX Web3 wallet continuously explore new technologies and methods, accelerate product updates and iterations, aiming to create a leading user-friendly and secure digital wallet. The launch of OKX's AA smart contract wallet ensures asset security while providing more customization and extended features such as batch transactions, gas subsidies, and private key recovery. This not only eliminates the constraints of mnemonic phrases/private keys to enhance security, but also simplifies the on-chain interaction process, automates gas subsidies, and lowers the barrier for users to use Web3 wallets, potentially ushering in the "iPhone moment" for Web3 wallets, and helping to achieve large-scale Web3 applications, opening up vast possibilities.
Opportunity
Why did OKX launch the AA smart contract wallet?
The "AA" in the AA smart contract wallet stands for "Account Abstract," so the AA smart contract wallet is also known as a smart account or account abstraction.
To understand what account abstraction is, it can be divided into two parts: "account" and "abstraction." First, let's understand some background knowledge about Ethereum accounts.
Almost everyone now has a financial platform account. Similar to bank cards, Alipay, and WeChat, Ethereum accounts can visually display the account balance. What makes Ethereum accounts special?
Unlike the Bitcoin network, Ethereum accounts not only support simple token transactions but also support complex smart contracts. Therefore, Ethereum has two types of accounts: Externally Owned Accounts (EOA) and Contract Accounts (CA). Currently, all wallets are built based on these two account types, and the differences between the two are directly compared in the following image.
How do Ethereum accounts work? For example, if Xiaoming creates EOA account A and Xiaoli creates EOA account B, can Xiaoming directly transfer 1 ETH to Xiaoli through account A? No, it is necessary to use CA account C.
Why? Because what if Xiaoli refuses to pay after Xiaoming transfers the money? Or what if Xiaoli ships the goods to Xiaoming but Xiaoming refuses to pay? A smart contract can be deployed to create CA account C. At this point, accounts A and B both transfer 2 ETH to account C. After Xiaoli ships the goods, account C is triggered to transfer 1 ETH to account A and 2 ETH to account B.
This is the basic explanation of Ethereum accounts. Next, let's talk about "abstraction." To help everyone understand account abstraction in a simple way, let's take an example. In the summer, we don't need to understand how the air conditioner works internally. We can control the temperature and fan speed through a remote control, which abstracts the internal operation of the air conditioner to the surface. With this basic concept, it is easier to understand the "abstraction" of accounts.
EOA accounts carry wallets, while CA accounts carry the logic of smart contracts, each with its own advantages and disadvantages.
Unlike traditional bank accounts, for EOA accounts, because their "ownership" and "signing authority" are integrated and controlled by a unique private key, various problems have arisen. Why? The "ownership" is the account holder, and the "signing authority" is the person who can control the account. For traditional bank users, even if a thief steals or loses the password "signing authority," others cannot transfer your assets "ownership" from the bank. However, for Ethereum EOA accounts, as long as you hold the private key, you can fully control the assets in the account. Therefore, EOA accounts currently face issues such as difficulty in saving private keys, high signing authority, and losing the private key means losing all assets. Imagine a scenario where the money is still in the wallet, but the private key is lost, and the money cannot be recovered. In addition, EOA accounts lack programmability and require ETH as gas fees to operate, among many other pain points.
For CA accounts, there are also problems. Although they can customize logic to achieve more functions, they cannot initiate transactions actively and must be called by EOA accounts. Additionally, because they are deployed on the chain, they require additional GAS and waiting time.
It is clear that both types of accounts currently cannot solve the complex issues of wallet usage, and they are both unsafe. Therefore, the AA smart account abstracts the complex operation logic of CA and EOA, simplifying the two types of Ethereum accounts into one. This account type will be able to simultaneously support cryptocurrency transactions and smart contracts, combining the programmability of CA with the ability to eliminate the reliance on EOA for initiating transactions, separating "ownership" and "signing authority," and combining the advantages of both. This can achieve multi-signature, batch transactions, gas subsidies, social recovery, and various new gameplay, without the need to distinguish between account types.
In other words, the wallet is also a contract, allowing the AA smart contract wallet to expand into diverse functions.
The development of account abstraction is inseparable from the Ethereum ecosystem. It was proposed at the beginning of Ethereum's launch, but most solutions were not mature or difficult to implement, and were shelved. The foundation for its real implementation is the proposal of ERC-4337, which aims to achieve flexibility and upgradability for wallets without modifying the underlying native protocol, including functions such as multi-signature and social recovery, as well as more efficient and simplified signature algorithms.
The image shows the official repost and like of the OKX AA smart contract wallet by ERC-4337.
EIP is a proposal for Ethereum improvement, providing a way to publicly solicit and discuss measures to improve Ethereum, allowing the community to work closely together to make Ethereum more efficient. Any content of an Ethereum update comes from EIP, and anyone can create an EIP, but it needs to go through review, including several stages of initial discussion, feedback, and revision. ERC is the formal standard, such as the well-known ERC20, ERC721, ERC1155, etc. Ethereum founder Vitalik Buterin has stated that the implementation of the ERC-4337 proposal "will open the door to creativity for wallet design" and that the proposal will reshape the design of Ethereum wallets. If successfully implemented, it could be the key to realizing the dreams of "account abstraction" and "social recovery."
It is worth mentioning that due to the support of abstract accounts at the native level by Layer2 public chains such as StarkNet and ZkSync Era, there is no need for the implementation of the 4337 standard to support the construction of abstract accounts, such as the Argent and Braavos wallets.
In summary, account abstraction has shown excellent performance in various aspects such as signature algorithms, functional implementation, and user experience, and has become a "must-have" for the large-scale application of Web3 wallets, worthy of everyone's expectations. Based on this background, OKX has taken the lead in researching and launching the AA smart contract wallet. It is worth noting that the AA smart contract wallet involves a large number of smart contracts and high difficulty in pressure testing on the contract side, and without a unified security standard, the efforts made by OKX behind this can be imagined, but we will not delve into this here.
Use Cases
After discussing the principles and background at length, the following will use the use cases of the OKX AA smart contract wallet to help users understand its innovations and the new experiences it has achieved.
Stablecoin Gas Payment. When using a regular Web3 wallet for transactions, it requires the use of the mainnet token (ETH) as gas fees. If the wallet does not have the mainnet token (ETH), transactions cannot be conducted. In addition to supporting the use of the mainnet token (ETH), the OKX AA smart contract wallet now also supports stablecoins USDT/USDC for gas payments, and will support other ERC20 tokens for gas payments in the future, removing the dependence on gas from the main chain token and making it more user-friendly and convenient.
Multi-Chain Support. OKX currently supports users in creating AA smart contract wallets on seven major mainstream public chains, including Ethereum, OKTC, Arbitrum, Polygon, Optimism, BNB Chain, and Avalanche.
DEX One-Click Exchange. The OKX AA smart contract wallet combines multiple steps that were previously required for interaction into a one-click process. For example, it combines the previous DEX authorization (Approve) and transaction (swap) into a single call data, allowing users to complete the operation in one step and enabling one-click exchanges on decentralized exchanges (DEX).
DeFi One-Click Mining. Similar to the OKX DEX one-click exchange, the AA smart contract account can combine various investment operations, allowing users to execute multiple investment and rebalancing operations with a single click, greatly improving efficiency.
In addition to the above highlighted features, the OKX AA smart contract wallet has also launched a gas subsidy activity, allowing users to enjoy one gas fee waiver per day when transferring or trading, with a maximum waiver of 5U. In the future, the OKX AA smart contract wallet will also support social recovery, provide wallet mini-program components, enable friends and family to pay gas fees on behalf of users, on-chain multi-signature functionality, and combinable operations for advanced on-chain financial strategies.
Imagine, once the social recovery feature is launched, we will bid farewell to the era where "losing the mnemonic phrase means losing the account." Users will no longer need to write down 12 words or private keys on paper. Even if the mnemonic phrase is lost, the assets will be safe, and users can access the account again through multi-factor authentication, enjoying a smooth Web2-like experience. Once the automatic execution feature is launched, transactions will run automatically when the user-defined conditions are met, similar to Alipay's password-free payment. This means that in the future, in scenarios such as blockchain games, Web3 social interactions, and high-frequency on-chain transactions, transactions will be automatically authorized and signed, greatly improving the user experience.
However, account abstraction wallets are not "perfect" and still have many aspects that need improvement. For example, since all logic of account abstraction wallets runs on the chain, it increases gas costs, and due to the dependence on smart contracts, deployment on the chain may not be compatible with other chains, and there is an increased risk of contract vulnerabilities.
Creation
How to create the OKX AA smart contract wallet?
Users can add the corresponding AA smart contract account to their existing account in different wallet types provided by the OKX Web3 wallet (mnemonic wallet, private key wallet, non-private key wallet, hardware wallet). Each AA smart contract account is generated by a regular account and is used to control on-chain behavior and account recovery.
For new users using the wallet for the first time, the OKX Web3 wallet provides two methods for creating a wallet: non-private key wallet and mnemonic phrase. For existing wallet users, they can import the wallet through four methods: restoring the non-private key wallet, restoring from the cloud (iCloud, Google Drive, Huawei Cloud), mnemonic phrase, and private key.
After completing the wallet creation or import, users can click ▼ on the wallet homepage, then select "Add Account" and "Smart Contract Account" to successfully create the AA smart contract account.
In the OKX Web3 wallet, each non-private key wallet or private key wallet can only create one AA smart contract account, while each account under the mnemonic wallet can create the corresponding AA smart contract account, such as Wallet A - Account 01, corresponding to Wallet A - Smart 01.
Future
The past is about understanding, but the future is about trends, and it is crucial for companies to perceive and grasp future trends.
Although the EIP-4337 solution is not yet mature, and developing account abstraction wallets based on it is not easy, the ultimate goal of Ethereum is to remove EOA accounts from the Ethereum network, and the AA smart account is undoubtedly the future choice, providing developers with a high degree of freedom, helping users reduce entry barriers, and bringing more gameplay and vast possibilities to Web3 wallets.
Currently, only a few technology companies like OKX have the early accumulation of encrypted wallet technology and have begun to lead and promote the development of AA smart contract wallets, continuously exploring and enhancing the value and experience of daily user use.
In recent years, as the world's second-largest cryptocurrency exchange, OKX is not eager to reach the top, but is returning to "first principles," rethinking the original intention of the enterprise and the path it will take in the future, and accurately grasping user needs, while also exploring decentralized business and focusing on Web3 wallets.
Just as the greatness of the iPhone is not about pioneering the smartphone, but about making the smartphone a mass-market product. As a product used frequently by users every day, OKX is starting to think about Web3 wallet products like "novice" users, continuously reducing their usage barriers. As Steve Jobs said, "Simplicity is harder than complexity. You have to work hard to get your thinking clean to make it simple," and the OKX AA smart contract wallet is about "making it simple," pursuing the ultimate user-friendly experience. Although it is not possible to immediately convert existing EOA users into AA smart contract wallet users, it brings the possibility of large-scale application of Web3 wallets.
According to a 2022 survey, as many as 1.7 billion people worldwide do not have bank accounts and are excluded from the modern financial system. Platforms like OKX are building Web3 tools that can allow these people to enjoy inclusive and equal financial services, bringing deeper liquidity and more users to Web3.
Indeed, "the size of the world depends on the scope."
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