Turning Web3 Wallets Into Smart Bank Accounts
The Road to Mass Adoption Is Paved With Account Abstraction
There are many barriers to the mainstream adoption of web3 technology, but perhaps no obstacle is bigger than the terrible way we’ve designed the wallets we use to access the blockchain. Even if you get past the confusions brought on by passcodes, public/private keys, and seed phrases, it still takes a half dozen steps to complete the most basic of crypto transactions. As Bankless Consulting Associate Hiro Kennelly writes, “you’d be forgiven for thinking that product designers and blockchain engineers are trying to make accessing web3 hard.”
Fortunately, a wrecking ball that goes by the name of Account Abstraction is coming to knock down this largest of obstacles, clearing the information superhighway for a more secure, transparent, and accountable internet.
At its core, Account Abstraction is really just a set of code-based specifications, but it both simplifies and supercharges the web3 wallet, enhancing user security, usability, and functionality. Among other things, this technology will enable businesses to treat the blockchain more like a bank account, where they can debit blockchain balances for recurring products and services.
Best of all, much of the blockchain will be relegated to the background. With the tech out of the way, companies can finally solve the web3 wallet UI/UX problem, ensuring that people can interact with the blockchain without ever knowing it. Once web3 starts to look and feel like web2, we won’t even be calling it the next generation of the internet, because nothing will have changed, except everything that can’t be seen.
Turning Web3 Wallets Into Smart Bank Accounts
The Road to Mass Adoption Is Paved With Account Abstraction
Author: Hiro Kennelly
Earlier this year, while much of the Ethereum community was focused on the timeline for enabling staking withdrawals, another change to its network architecture was deployed — and it promises to make the adoption of digital assets happen more quickly and with less friction than many imagined. The name for this technological breakthrough is Account Abstraction, a set of standards for code-based wallets that merges the best of smart contract wallets like Safe (formerly Gnosis) with the power of regular wallets like MetaMask to create a secure and customizable web3 wallet.
While not as headline-making as many recent network upgrades like The Merge, Account Abstraction is all about user experience, expanding use-cases for businesses, and moving the needle towards mass adoption of blockchain-based technology. Better yet, it will make interacting with the blockchain familiar to anyone who has used online banking and smartphone applications, and it should do it without the user noticing the difference, in what to many long-time crypto users will seem like magic. This standard is just starting to be implemented, so it’s too early to talk about specific wallets, but a general overview of what Account Abstraction enables should make even the most bearish wallet user downright bullish on what’s to come.
Account Abstraction Solves Long-Standing Issues
In many ways, you’d be forgiven for thinking that product designers and blockchain engineers are trying to make accessing web3 hard. Crypto wallets are as cumbersome to use for regular transactions as they are arcane in their security requirements. While there have been some attempts to make your web3 wallet act more like a smart bank account — the best examples of this are Safe and Argent, this wasn’t really possible until Account Abstraction.
As with bank accounts, Account Abstraction allows you to:
Set spending limits
Protect your account with 2FA authorization
Place freezes on your account
Enable trusted parties to help you access your account
Set up recurring payments
In addition to bringing a familiar user experience to web3, there are a number of blockchain-specific problems that Account Abstraction solves, including:
Smooth User Experience. One of the major UI/UX flaws in the way we interact with the blockchain is that it can often take a half-dozen steps to complete one simple transaction, and you have to click and tap your way through the process one prompt at a time. With Account Abstraction, many of these interactions can be automated away in the background.
Easier to Use. One of the great barriers to adoption is that most crypto wallets are just plain hard to use. Choosing a type of wallet, setting it up, and storing and securing a seed phrase can be daunting for seasoned crypto natives, let alone those new to web3. Account Abstraction eliminates the need for private keys and it allows others to help you in the event you are locked out of your wallet.
Payment Options for Fees. Normally, you pay fees for using the network in the blockchain’s native token, such as ETH or MATIC. Account Abstraction enables users to pay these fees using other digital assets, and it also allows third parties to cover transaction fees.
Auto-Wallet Creation: Account Abstraction allows projects to automate wallet creation, streamlining the use and adoption of web3 applications.
Programmable Wallets for Our Digital Life
At its simplest, Account Abstraction enables the creation of user-friendly programmable smart wallets, giving users and projects the type of experience found in fiat-based financial transactions but with the flexibility and transparency only available with programmable money systems.
Now that Ethereum has the technical aspects in place to enable better web3 wallets, it’s up to builders and other ecosystem participants to take the next steps. This is starting to happen, as industry leaders like MetaMask are releasing tools to help developers integrate Account Abstraction into their dApps and Coinbase hinted at support for Account Abstraction later this year. In the meantime, we should expect to see many wallets and dApps introducing integration with this tech sooner rather than later.
Famed science fiction writer Arthur C. Clarke wrote that “Any sufficiently advanced technology is indistinguishable from magic.” With Account Abstraction, the hope is that blockchain-based technology doesn’t just appear to be magical, but that the blockchain doesn’t appear to the user at all.
Hiro Kennelly is a writer, editor, and coordinator at BanklessDAO, an Associate at Bankless Consulting, and is still a DAOpunk.
🎙️ Early Podcast
A Podcast About Web3 Business from Bankless Consulting
Ep. 13 Giddy: Unlocking DeFi for the Masses with Eric & Ethan Parker
DSide's guests are Eric and Ethan Parker, the founders of Giddy, a mobile crypto wallet that is designed to make self-custody easy and accessible for everyone. In this episode, they discuss their mission and how their focus is on the user experience.
The idea for Giddy started as an ad-hoc consulting business, where they showed clients how to manage their private keys. They discovered that private keys were a significant barrier to entry for many people because of their complexity. Giddy's breakthrough was finding a balance between security and ease-of-use and enabling average people to recover their private keys if mismanaged, reducing the risk of a single point of failure. The founders also discuss how they see DeFi continuing to disrupt the traditional finance industry. They believe that DeFi will eventually become mainstream, and traditional financial institutions will have to adapt or risk becoming irrelevant.
Web3 Business Developments
Curated News on Recent Blockchain Adoption and Innovation
Defense Dept. Explores Crypto Use Cases With Blockchain Startup Constellation
Author: Sebastian Sinclair
🔑 Insights: The U.S. Department of Defense (DoD) has successfully finalized a key blockchain contract with Constellation, a startup specializing in big data processing. This marks a significant stride as one of the earliest completed Phase II blockchain contracts within the government. Constellation's Phase II contract led to a secure prototype designed to enhance the U.S. military's backend systems. Phase III will focus on the platform's commercialization, unrestricted by duration or value.
Despite mixed perceptions of crypto within the defense sector, Constellation has identified several potential use cases, including procurement and secure system access. This progress aligns with the broader U.S. military trend towards blockchain technology. Key benefits of this development include:
Enhanced Security: Blockchain technology offers robust security due to its decentralized and encrypted data, critical for the DoD's sensitive information.
Efficient Data Transfer: Constellation's Hypergraph Transfer Protocol (HGTP) allows for encrypted, authenticated, and efficient data handling, streamlining operations and communication.
Potential for Crypto Integration: Despite mixed views on crypto, its potential applications in areas such as procurement and secure access open up new possibilities for workflow optimization and transactions.
Future Commercialization: The shift to Phase III paves the way for commercialization, possibly leading to wider adoption and further blockchain application development in the defense sector.
Innovation and Modernization: This collaboration forms part of the DoD's strategy to modernize its systems and embrace emerging technologies, highlighting the U.S. military's commitment to innovation.
PayPal Discloses Nearly $1B of Crypto Assets on Balance Sheet
Author: Katherine Ross
🔑 Insights: PayPal, the global payment processing giant, is breaking down barriers to web3 onboarding and turning the complexities of crypto transactions into a seamless experience. PayPal has recently reported nearly $1 billion in customer-owned cryptocurrencies on its balance sheet in a recent 10-Q filing with the Securities and Exchange Commission.
This increase aligns with PayPal's enhanced crypto services, including enabling transfers to third-party wallets, introducing crypto transfers on Venmo, and partnering with the blockchain leader ConsenSys. Considering its vast user base and global reach, PayPal's foray into crypto is significant for widespread adoption. Key benefits of PayPal's crypto services include:
Convenience: As a trusted payment processor, PayPal makes crypto transactions user-friendly and less intimidating.
Flexibility: Users can buy, sell, or hold cryptocurrencies.
Security: PayPal's robust security measures provide assurance to users about the safety of their crypto assets.
Microsoft, Goldman Sachs, and Other Big Firms Back Launch of Financial Blockchain
Author: André Beganski
🔑 Insights: The Canton Network, an interoperable blockchain network for institutional assets backed by major financial firms, was recently launched. Developed by Digital Asset and others, it aims to streamline transactions, synchronize financial systems, and foster innovative product offerings, addressing key obstacles like data privacy, interoperability, and scaling limitations.
Despite regulatory challenges and crypto setbacks, robust institutional adoption signals continued faith in blockchain's potential. Key benefits of the Canton Network include:
Streamlined Transactions: Improves onboarding and user experience with faster and efficient transactions.
Interoperability: Reduces onboarding complexities and enhances cross-platform communication.
Innovation: Encourages the creation of innovative financial products and services.
Privacy and Data Control: Balances data sharing and protection to reduce entry barriers.
Regulatory Compliance: Eases concerns for financial institutions by complying with regulatory frameworks.
“At Cboe, we believe the tokenization of real world assets may offer an unprecedented opportunity to create new market infrastructure and drive efficiency in the trading of products across the globe. By leveraging new blockchain technologies, we can potentially unlock new opportunities for market participants. Efforts like the Canton Network will help our industry further explore this frontier.”
Cathy Clay, Executive VP, Global Digital and Data Solutions, Cboe Global Markets
Tether Posts Massive First Quarter Profits of $1.48 Billion
Author: Mat Di Salvo
🔑 Insights: Tether (USDT), a leading stablecoin pegged to the US dollar, recently reported a net profit of $1.48 billion. This announcement came as part of its Q1 2023 assurance report, prepared by BDO Italia. The report also disclosed that Tether's reserves surplus reached an all-time high of $2.44 billion, a significant increase from the same quarter last year.
This move towards greater transparency has been positively received, given past criticism of Tether over its lack of transparency. The disclosure is expected to enhance trust and credibility among users, regulators, and the wider market, paving the way for Tether to play a crucial role in onboarding new users to the crypto ecosystem.
Tether's role in DeFi and its use in regions with restricted access to US dollars also underscore its importance in democratizing financial systems. The stablecoin provides stability, liquidity, and easy access, offering newcomers a comfortable entry point into the world of cryptocurrency. Although the report prepared by BDO Italia has yet to be independently audited, the disclosure marks a significant step towards broader acceptance and institutional use of Tether.
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