The Importance of Smart Wallets for Global Adoption
If you’ve ever held your own crypto assets in a non-custodial wallet (such as a Ledger or Metamask), it’s easy to recognize the pressure, inconvenience and risk associated with secure storage. Many of us are familiar with writing down seed phrases and private keys and putting them in a secret, obscure location — leaving the last line of defense to our digital wealth to a piece of paper.
While there are alternatives and precautions you can make, for the most part, this widely accepted method seems counterintuitive to an industry built on an emerging technology. Many retail investors rely on centralized third parties as an alternative, such as exchanges or custodial providers, but this largely goes against the decentralized nature and notion of “Not your keys, not your Bitcoin”.
Like anything, there are downsides to non-custodial wallets. We often hear stories of early crypto enthusiasts losing fortunes by misplacing their private keys or a hacker stealing the keys through mismanagement. With this, you can imagine that this method will not scale to billions of global users across the world. If early adopters (who can be considered “experts”) have lost their funds by something as simple as losing their private key, you can assume that, at scale, millions of people would lose their holdings.
In order for crypto to scale for global adoption, we need to improve the non-custodial experience by providing additional features to mitigate risks and streamline user experience without a cost in security.
Introducing Smart Wallets
Smart contract wallets (smart wallets) enable the creation of a non-custodial wallet that streamlines back-end complexities to resemble consumer-friendly banking solutions while providing better security and ease of use.
What sort of capabilities do they provide?
Smart wallets provide a plethora of benefits over traditional non-custodial wallets. Many of these features outlined in the article draw directly from Argent’s smart contract wallet design and is the inspiration behind this article.
Security
Recovery Tools: By assigning trusted devices or people, any smart wallet owner can recover their funds without a private key or seed phrase through a common vote. Argent’s version calls these trusted devices and individuals, guardians. These guardians could be any other ETH address including other devices or wallets you own, a professional custodial, or even trusted friends and family. It’s important to note that none of the guardians have access to your account or directly hold the private keys, rather they simply grant approval that you should be the one who is able to re-access the account. The shift away from paper back-up to this mechanism is a drastic improvement and is one of the major features we believe is needed for moving crypto forward.
Daily Limits: By setting daily limits, the chance that an attacker could receive the entirety of your funds reduces dramatically. If any withdrawals are above the daily limit, the user must either (1) wait some predetermined amount of time before the transaction is sent or (2) must be approved by the guardians. Here’s a demo of Argent’s daily limits feature at CogX 2019.
https://twitter.com/argenthq/status/1145682086646505472?s=21
Account Freezing: Smart wallets enable the functionality for users to freeze their accounts in the instance of any malicious or fraudulent activity, similar to normal credit or debit cards.
Ease of Use
Readable Addresses: With smart wallets such as Argent, users are prompted to create simple addresses using ENS that replace the long string of numbers and letters that we see today. For example, someone’s wallet address would be John Doe (john.doe.xyz) instead of 0xA0b86991c6218b36c1d19D4a2e9Eb0cE3606eB48
No Transaction Fees: Meta transactions allows for gas fees to abstracted away from the user, creating a seamless on-boarding and dApp experience for new users. If you’re interested in learning more about meta transactions, this blog from Austin Griffith does a great job.
Smart Wallet Providers
While smart wallets are a relatively new concept, there are a few established entities leveraging this design.
Argent — Aims to offer a “radically better crypto wallet” that allows users to enjoy the future of the web through smart wallets for Ethereum-based cryptocurrencies and apps. These smart wallets boast no paper backups, simple addresses and free transactions. Argent’s mission is to help everyone benefit from the decentralised web and is said to be inspired by the potential to reverse the massive concentration of wealth and power of today’s internet.
Gnosis — The Gnosis Safe aims to provide all users with a convenient, yet secure way to manage their funds and interact with decentralized applications on Ethereum. By leveraging 2FA and multi-signature transactions, Gnosis offers a variety of products ranging from a personal edition to a team edition for funds that need to be accessed by multiple individuals.
Conclusion
It’s interesting to note that while the concept of smart wallets are applicable to all cryptocurrency users, virtually all of the existing products are being built on Ethereum. While this is clearly due to maturity and rise of new industries such as DeFi, it’s only logical that the best product will offer interoperability for storage of all currencies, regardless of their underlying infrastructure.
Nonetheless, we at Fitzner Blockchain Consulting have a strong inclination that smart contract wallets will help facilitate global adoption in the future. For now, smart wallets offer an exciting promise for the next wave of retail consumers and businesses looking to spend, receive and store digital assets.
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Writers: Cooper Turley — https://twitter.com/Cooopahtroopa
Lucas Campbell — https://twitter.com/0x_Lucas
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