This New Ethereum Upgrade Finally Makes Crypto Usable for Everyone!

6 min readAug 21, 2023

When Ethereum developer Yoav Weiss called account abstraction “the greatest thing that happened to crypto since smart contracts,” his enthusiasm was understandable. This long-awaited Ethereum Request for Comment (ERC) finally addresses one of the biggest usability and security challenges holding back mainstream blockchain adoption.

By allowing user accounts to become programmable for the first time, ERC-4337 represents a major paradigm shift. No longer must users secure intimidating cryptographic private keys to interact with blockchains. Instead, smart contracts can handle authentication in customizable ways that mirror real-world experiences.

Think passwordless FIDO authentication, spending limits and recovery options. Or a “cryptographic signature of your choosing” as Weiss puts it. The possibilities are endless thanks to the new “smart account” model ushered in by ERC-4337.

To grasp the full significance of this update, it helps to contrast the new smart account approach with the external owned accounts (EOAs) that have dominated most blockchain platforms until now.

The Problems With External Owned Accounts

Since Bitcoin’s inception over a decade ago, externally owned accounts have been the norm for blockchain users. EOAs are simple public/private key pairs that act as user accounts on networks like Bitcoin and Ethereum. The public key serves as an address to receive funds, while the private key provides the cryptographic authorization needed to access and control that account.

This elegantly simple setup enables trustless peer-to-peer transactions without intermediaries. But for average users, EOAs come with steep usability trade-offs:

Private key management — Users must securely generate and store a long cryptographic private key. Lose this key and access to funds is lost forever.
Seed phrases — The 12–24 word mnemonic phrases that often represent private keys introduce complexity and are themselves a point of failure. Users struggle to memorize and store these properly.
No recovery options — If users lose private keys or seed phrases, no centralized entity can help recover access like with traditional bank accounts. Funds are permanently frozen.
No spending limits — Nothing stops a malicious actor who gains access to a private key from draining all funds immediately. And smart contracts can’t impose caps.
Inflexible authentication — The sole method for authorizing transactions is via private key signature. No way to add multi-factor auth, social recovery, biometrics, etc.
Custodial trade-offs — Many users opt to trust exchanges with private keys. But these custodial accounts introduce counterparty risk and lack custom controls.

In short, EOAs thrust a heavy security burden onto users while limiting account functionality in the name of decentralization. It’s no surprise that lost private keys and seeds lead to billions in inaccessible crypto funds each year.

Mainstream users struggle to adapt blockchain’s unfamiliar mental models. And the results can be financially disastrous.

How ERC-4337 Changes The Game

ERC-4337, which went live on Ethereum mainnet in March 2023, aims to resolve this tension between usability and security for good.

Instead of users directly controlling standalone EOAs, smart contracts become the accounts holding assets and encoding authentication logic. Backed by an active “bundler” ecosystem, the smart account paradigm unlocks several game-changing capabilities:

Flexible authentication — Beyond private keys, smart contract accounts can implement FIDO, multi-factor auth, biometrics, social recovery and other familiar patterns.
User-friendly recovery — Accounts can include recovery options like trusted contacts or identity verification falls backs in case of lost credentials.
Spending limits — Smart contract logic enables rate limiting, transfer caps, time locks, and other programmable account controls.
Asset consolidation — Users can hold tokens across multiple apps/protocols in a single smart account instead of scattered EOAs.
Permissionless innovation — Anyone can build custom smart account solutions tailored to different risk tolerances, jurisdictions, devices and user needs.

All of this becomes possible because authentication logic shifts from the network layer to the account contract layer under ERC-4337. User identities are abstracted enabling more flexible and extensible wallet design.

For end users, smart accounts offer the best of both worlds — blockchain’s core benefits of self-sovereignty and censorship resistance with the usability and recovery options of traditional finance.

But how does the ecosystem of bundlers, paymaster and other components enable this shift in practice?

Under the Hood: Bundlers, Paymasters and Mempools

On a technical level, ERC-4337 introduces some new concepts and roles:

Bundlers — Participants who compile user operation transactions and publish account state changes to the Ethereum blockchain (like miners or validators).

Paymasters — Services that cover gas fees for users when their transaction operations are bundled. This includes wallets, exchanges and dApps.
UserOps — The new transaction format that encodes account operations like transfers or logic changes. Replaces vanilla EOA transactions.
Mempools — Pending userOps stay in Bundler-run priority queues called Mempools until inclusion in blocks.

This architecture aligns incentives around providing a great user experience. Paymasters cover fees so users don’t think about gas. Bundling is open and permissionless so users have service options. And abstracted accounts enable secure and intuitive wallet design.

While technical under the hood, these components enable a straightforward user flow:

User signs wise-operation transactions via their smart account app.
App submits these UserOps to an open Bundler Mempool.
Bundler bundles/optimizes then publishes UserOps to blockchain.
Paymaster (chosen by user’s app) covers bundled gas fees.

Just like drivers for Uber or hosts for Airbnb, the open ecosystem of Bundlers, Paymasters and custom smart accounts should create a market for customized user solutions.

Onboarding The Next Billion: Challenges and Opportunities

ERC-4337 has been met with enthusiasm by many in the Ethereum community who see its potential to finally onboard mainstream users. But some challenges and questions remain.

First, it will take time to educate developers and ensure wide support across wallets, applications and protocols. Luckily backwards compatibility means EOAs will co-exist with smart accounts, giving projects time to migrate.

There are also open questions around standards and best practices. How strictly should custom auth logic be validated? What are suitable paymaster reward models? As with any new crypto primitive, real-world usage will refine these parameters.

Consumer education around self-custody versus new account recovery options will also be important. And some decentralization purists argue any abstraction betrays core tenets.

Regardless of debates, the traction behind ERC-4337 demonstrates the urgency of fixing blockchain usability. The recent crypto market downturn only underscores this need for products that deliver tangible utility.

If Ethereum aims for global adoption, meeting users where they are with familiar account experiences is critical. As Yoav Weiss said, the next billion users won’t be writing seed phrases on paper — they need smart accounts.

Beyond Ethereum: The Future of Web3 Accounts

Once proven, it’s easy to imagine the smart account model spreading to other blockchains looking to improve new user onboarding.

Solana, Polkadot, NEAR and other sophisticated programmable platforms could adopt generalized account abstraction standards for a better user experience. Even non-EVM chains like Bitcoin could integrate ad-hoc versions.

More broadly, solutions like social recovery wallets and crypto FIDO authenticators enabled by smart accounts provide a glimpse of how blockchain technology can evolve from just storing value to securing digital identity more holistically.

Just as Satoshi Nakamoto introduced programmable money over a decade ago, ERC-4337 heralds programmable identity and user empowerment. Harnessing the full power of Web3 requires both.

Of course, the impact of ERC-4337 will ultimately depend on execution. Done right, smart accounts could dramatically expand blockchain’s addressable market and usher in exponential growth. There’s certainly no lack of demand for blockchain usability done better.

Now is the chance for the ecosystem’s builders and innovators to deliver.

The door to Web3’s next era of adoption stands open.

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