How Account Abstraction Enables Automated Payments on the Blockchain

Understanding how account abstraction works and how it can enable automated payments

As the use of blockchain technology continues to grow, there is an increasing need for products that offer a superior user experience and core functionality that supports real-world use cases. One such use case is the ability to set up automatic recurring payments, similar to how we can set up recurring payments today on our mobile banking applications or with credit cards.

Though we’ve been accustomed to such mechanisms with existing Web2 services, the security-focused blockchain technology doesn’t allow you to set up automatic recurring payments. In the current blockchain environment, a user’s account is tied to their private key and every time a user wants to make a transaction, they sign it using their key

However, this becomes a problem when a user for some reason can’t sign the transaction themselves but still needs the transaction to go through. Let’s consider a hypothetical scenario. Jade runs a company of 5 employees and pays their salary on the 25th of every month. This month she has to attend a conference on the 23rd and will not be having access to her wallet until the 1st of next month.

With current Web2 services, Jade would use her bank account and set up auto-payment to pay her employees. Or, she could also authorize her trusted secretary to sign off on making these payments. However, this is not possible if the only way Jade can make the payments is she has to sign each transaction with her private key.

Many Web3 projects, including Cardstack, are working to solve this challenge through a concept called account abstraction while ensuring that the security offered by blockchain technology remains intact. Account abstraction is a process that allows a smart contract to execute a transaction in proxy of a user’s private key. The smart contract can be programmed to automatically execute a transaction based on certain parameters, use alternative security signatures or even update contracts based on specific conditions or triggers.

Blockchain in its current state has already contributed significantly to cross-border payments, and with account abstraction, it can further streamline cross-border workforce payments, business-to-business transactions, and subscription payments. Here are a few examples of how smart contracts can be programmed to simplify payments for various use cases:

• Payroll management: A smart contract can be programmed to consider parameters such as employee benefits, holidays, and tax deductions and pay automatically each month to all employees on the due date regardless of their location at a fraction of the cost when compared to the traditional banking system.
• B2B payments: Account abstraction can empower smart contracts to withdraw and automatically pay to a business upon completion of a service. The approach can improve supply chain management and how business-to-business transactions are conducted today. Read our blog on how smart contracts can help optimize business processes here.
• Recurring subscription payments and billings: Web3 projects still use Web2 services for collecting SaaS subscription payments or to pay their recurring bills. Account abstraction can further simplify subscription payment and billing for Web3 SaaS projects.
• Multi-user access: Account abstraction can be extended to enable multi-user access. For instance, in the example of Jade discussed earlier, she can add her secretary to sign off transactions in her absence. The smart contract can further limit how much can be paid by a secretary or guest user.

How Cardstack can help?

Cardstack’s Safe Tools allow Web3 businesses to pay their globally dispersed teams, vendors, and freelancers in crypto. Web3 projects can keep a track of all their payments from one dashboard for streamlined bookkeeping.

Sign up for Safe Tools here: https://hubs.li/Q01Kf2CW0

Read more about the future of blockchain technology below.

Why Businesses Are Moving Their Loyalty Programs to Blockchain

Why Composable Application Architecture Is Key to Scalability

Why Gasless Payment Is Key to Mainstream Crypto Adoption

How Blockchain Simplifies Payroll for Businesses and Gig Workers