THE FUTURE OF CRYPTOCURRENCY WALLETS: HOW SMART CONTRACTS WALLETS ARE CHANGING THE GAME.
For decades, wallets have been known to secure private data, money, or confidential documents. The Cambridge Dictionary defines a wallet as a small folding case for carrying paper money, credit cards, and other flat objects. The use of wallets and their importance have always centered around security and portability.
As cryptocurrency continues to show its impact in the world of digital finance, the same wallet concept has been introduced but in a digital form. Over time, the two most prominent crypto wallets are known as software and hardware wallets. These wallets acting as a sort of virtual bank account have been used to store cryptocurrencies, and crypto tokens and to interact with decentralized applications. While these wallets can be termed as portable devices that are designed to store private keys, underlying issues centering around hacks, cost, inconvenience, and quality security have made these wallets come under intense scrutiny.
It is without a doubt that cryptocurrency wallets are an essential part of the blockchain ecosystem. And so, as the evolution of blockchain technology continues to move with the speed of light, smart contract wallets have been discovered as game changers as they offer the most advanced features to herald in the innovations associated with cryptocurrency wallets. So in this article, we would discuss how and why smart contract wallets could be considered the future of cryptocurrency wallets.
Smart contract wallets are a type of cryptocurrency wallet that allows users to own an account in the form of smart contracts on the blockchain. These wallets have become increasingly popular due to their ability to automate complex processes and provide wallet recovery functionalities and thus enabling seamless and secure interaction with the blockchain.
A significant benefit of smart contract wallets is their ability to give users greater control over their digital assets.
In terms of security, unlike traditional cryptocurrency wallets, which often rely on centralized exchanges or other intermediaries, smart contract wallets allow users to interact directly with the blockchain, giving them more autonomy and security. Also, Smart contracts wallets are used to enforce the terms of a transaction, which means that the transfer of funds can be completed automatically once certain conditions are met. This can help to reduce the risk of fraud and ensure that transactions are completed efficiently and accurately.
Over the years, wallet security issues have been a thorn in the side of the blockchain ecosystem almost since the time of its inception. An estimated value of over one billion dollars has been lost as a result of wallet hacks, but then, wallet hacks and theft have not been the only reason for losses, as there have also been losses as a result of losing one’s private keys.
One analysis of the Bitcoin ecosystem suggests that 1500 BTC may be lost every day- over ten times more than what Bitcoin users spend on transaction fees, and over the years adding much to as 20% of the total supply. All of these point to one unavoidable truth, the importance of wallet security can never be overemphasized.
The underlying truth remains that it is easy to see the social and psychological reasons why wallet security is often underestimated, this is a result of the fact that people naturally worry about appearing dumb or careless in the eyes of a very judgmental public, and so many keep their experiences to themselves. And with the prevalent line of thought as “there is no one to blame but yourself”, it makes the loss of funds even worse. But the reality is that the reason behind the evolution of blockchain technology is to make it easier for humans to engage in very knotty tasks without having to live in constant fear of making mistakes. Cz, the CEO of Binance in explaining the value of wallet security made the comments in this video. https://youtu.be/jTYJlsJUeWs
Focusing on the remarkable benefits of Smart contract wallets, a colossal gem that promises to be a strong game changer in terms of wallet security is the use of social recovery.
What Is Social Recovery?
The concept of social recovery is a security feature that can be used in smart contract wallets to allow users to recover their wallets in an event such as losing a private key or access to their wallets. This is made possible in such a way that the user can regain access to their account with the help of a family member, trusted friend, another device, or an institution. To use social recovery, the user must first designate several trusted contacts as the guardian to the wallet so if they lose access to their wallet, they can thus request their trusted contacts for approval. They can then help the user regain access to their wallet by signing a simple message. Though social recovery seems like a very useful technique to help curb issues surrounding recovery and inheritance, it is important to make sure to appoint trusted friends and family members as guardians and also educate them regarding the process.
To reduce the risk of attacks on guardians, social recovery methods when in use would not necessarily make the guardians publicly known. This is made possible in two ways. First, instead of the guardians’ addresses being stored directly on the chain, a hash of the list of addresses can be stored on the chain, and the wallet owner would only need to publish the full list at recovery time. Second, each guardian can be asked to deterministically generate a new single-purpose address they would use just for that particular recovery; they would not need to send any transactions with that address unless a recovery is required.
A big brain teaser with the use of social recovery is the fact the solution goes back to “trusting people” and so it is seen as a betrayal of the values of the blockchain and cryptocurrency. But Vitalik Buterin, one of the advocates of social recovery explains that “the goal of crypto was never to remove the need for all trust. Rather, the goal of crypto is to give people access to cryptographic and economic building blocks that give people more choice in whom to trust and allow people to build more constrained forms of trust: giving someone the power to do some things on your behalf without giving them the power to do everything. Social recovery is a perfect expression of this principle. https://vitalik.ca/general/2021/01/11/recovery.html
Looking ahead, it is clear that smart contract wallets are set to play a significant role in the future of cryptocurrency. As the adoption of blockchain technology continues to grow, we can expect to see smart contract wallets becoming an increasingly common and essential part of the cryptocurrency ecosystem. Along with social recovery, more forms of wallet recovery can further help make smart contract wallets more usable and secure in the future.
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