September 8, 2023
Controlling Wallets Like Email Accounts
At the EthParis, Ethereum co-founder Vitalik Buterin praised modern account abstraction as a “really elegant” upgrade for the Ethereum network. Unlike previous upgrades, this one does not require changes to the underlying protocol. Account abstraction has been in development since 2015, even before Ethereum’s launch, with the goal of moving from Externally Owned Wallets (EOAs) to SmartContract-based wallets.
If successful, this upgrade would make managing a crypto wallet as easy as managing an email account. Users could recover their SeedPhrase, used to sign transactions, as easily as resetting an email password. The latest version, EIP-4337 (Account Abstraction Using Alt Mempool), enables users to create non-custodial wallets as programmable smart contracts. This unlocks various features, such as easy wallet recovery, signless transactions (lower transaction fees), and team wallets (multisignature wallets).
The upgrade also introduces the concept of,” paymasters,” allowing users to pay gas fees with the token they are transacting with, even if it’s not Ethereum. Signature aggregators are included, enabling multiple signers to join together, with only one signature used in a transaction. This brings advantages in rollups, Ethereum’s layer 2 scaling solutions, as it significantly reduces data size and computation costs.
This upgrade is touted to be a key catalyst for Web3 adoption worldwide, as it enhances blockchain accessibility and usability.
THE REGULATORY SIDE
While the idea is revolutionary certainly as it solves a prescient problem: the clunky interface in accessing and using non-custodial wallets – it doesn’t do away with a key concern.
Control.
A regulator will always look at substance over form and a good regulator (which most are increasingly becoming) will not be swayed by the simplistic explanation of: “It’s not me, it’s the smart contract”. The questions that will follow such a statement would be:
1) Who controls the code? A decentralised community or the devs?
2) Who upgrades the code? A decentralised community or the devs?
3) Who has authority to interfere with the smart contract functionality? Nobody, it’s immutable OR in a worst-case scenario, technically, the devs do.
Now, if the answers to 1-3 were overwhelmingly and unquestionably – the community – there is a valid and reasonable argument of DeFi-based unregulated activity to make.
However, in my experience, 99% of projects will give the opposite answer for at least one (if not more) of the questions posed above.
If that is the case, regulations would apply because despite the marketing, the solution is ultimately, at its core, centralised. Centralisation comes with power concentrated in the hands of the few, which rightfully attracts regulation.
This doesn’t mean the tech has to be stopped, there is merely a regulatory component that needs to be complied with to bring this tech to market is all. Easy-peasy