Summary
ERC-4337 is an Ethereum standard that achieves account abstraction in the protocol without causing any changes to the consensus layer. ERC-4337, which was implemented on the Ethereum mainnet in March 2023, makes it possible to transact and create contracts in a single contract account. It opens the door to user-friendly crypto wallet designs that would potentially promote broader adoption.
Introduction
The Ethereum Improvement Proposals (EIP) outline standards such as the core protocol specification and contract standards for the Ethereum platform. An Ethereum Request for Comment (ERC) is a type of EIP that establishes application-level standards, such as contract and token standards. An EIP only becomes an ERC once on-chain governance authorizes the change.
ERC-4337 is the latest ERC standard implemented on the Ethereum mainnet to achieve its long-awaited goal of account abstraction. Some still refer to ERC-4337 by its original term, EIP-4337. However, EIP-4337 was initially proposed in 2021 and in 2023 received clearance to become ERC-4337.
What is ERC-4337?
ERC-4337 was proposed by Ethereum co-founder Vitalik Buterin and other developers in 2021 to establish account abstraction. It was implemented on the Ethereum mainnet in March 2023 and is expected to be the precursor to user-friendly crypto wallet designs.
In Ethereum, account abstraction aims to combine functionalities of the two types of accounts existing in the protocol: externally owned accounts (EOA) and smart contract accounts. The result is a single contract account that can transact tokens and create contracts at the same time. This change makes creative wallet designs such as social recovery, customization, and upgradeability possible.
Another way to understand the ERC-4337 standard is that it brings smart contract functionality to wallets in a single account. This makes services like multi-factor authentication and automatic payments easier to set up.
Why is the ERC-4337 standard necessary?
To understand why ERC-4337 is necessary, it is important to understand why it was proposed and implemented in the first place. Unlike the Unspent Transaction Output (UTXO) module of the Bitcoin network, the Ethereum protocol uses an account-based model. This means that the Ethereum protocol keeps track of and updates available account balances as transactions are confirmed.
The two types of Ethereum accounts have their own functionalities. EOAs are owned and controlled by users, while smart contract accounts are smart contracts that are deployed on the network. Both accounts can receive, hold and send Ether or tokens.
Most existing crypto wallets, like MetaMask, are EOA, meaning they are limited by the rules established around EOA. These limitations include relying solely on private keys to access accounts and requiring all transactions to be signed. For this reason, wallet setup procedures and private key security measures are generally complex and difficult to use. If users lose their seed phrases, this usually means losing access to the wallet.
ERC-4337 removes these limitations. Smart contract wallets, such as UniPass and Safe, are wallets managed by smart contract accounts rather than EOA accounts and can achieve the same goal. However, users must manage their Ether in two accounts to pay for gas or rely on a centralized relay system. ERC-4337 eliminates these limitations because it combines the functionalities of the two accounts into one, making it easier to implement the desired wallet functionalities.
How does ERC-4337 work?
The Ethereum community has long been working on ways to achieve account abstraction. Before EIP-4337, the community raised another proposal in order to achieve account abstraction: EIP-2938. The EIP-2938 standard was similar to ERC-4337, but required changes to the consensus layer. ERC-4337 prevents them.
It does this through the introduction of a higher-layer pseudotransaction object called UserOperation, which shares similarities with rollups, as they both involve different versions of the bundling concept. In ERC-4337, different users send UserOperation objects to a separate mempool.
Bundlers package these objects into a transaction, which is included in a block. Bundlers pay the gas required for bundled transactions and receive the fees paid for individual UserOperation executions. Groupers work similarly to validators: they choose which objects to include based on commission prioritization logic.
New features are also being added, such as ValidateUserOP, to allow a wallet to be a smart contract at the same time. A new contract called EntryPoint is also being introduced to serve as a security gate for the execution of these new functions.
What objectives does ERC-4337 achieve?
Among the objectives that the ERC-4337 standard aims to achieve include the following:
Account Abstraction: Allow users to enjoy a single account with capabilities of smart contract accounts and EOAs.
Decentralization: allowing any of the so-called bundlers to participate in the process.
Avoid consensus changes: Enable faster adoption as Ethereum's consensus layer focuses on scalability-oriented updates.
Enable innovative use cases: These could include aggregate signing, setting daily transaction limit, urgent account freezing, whitelisting, and privacy-preserving applications.
Save time and gas: Because bundlers can package UserOperation objects into a single transaction, time and gas could be saved.
What does the ERC-4337 standard mean for users?
ERC-4337 could mark the end of the complicated user experience of crypto wallets and in doing so could also increase adoption. Here are some highlights of what ERC-4337 could enable:
Wallet Setup – Eliminates the need to take note of seed phrases; Setup can be quick and easy with just a few clicks.
Worry-free account recovery: Users will no longer have to fear the loss of their seed phrases because multi-factor authentication and account recovery are possible.
Easy-to-use wallet features: Users can enjoy a wide range of customized services including auto-pay, pre-approval transactions, and bundled transactions. The sky is the limit.
Better security: Wallets could potentially be more secure because the possibility of human error is reduced. You no longer have to write down and hide your seed phrases. ERC-4337 should, in theory, lead to a smoother and friendlier user experience and thus remove a major obstacle to mass adoption.
Gas Flexibility: Wallets developed under ERC-4337 can now pay gas fees with any ERC-20 token, among others. Developers can build wallets that make it possible to pay gas fees with any token and even fiat.
Conclusions
Crypto wallet terminologies such as seed phrases, private keys, and public keys can be daunting to new users. The process of using cryptocurrency wallets is still a challenge for some people. Many agree that the average user's crypto interface should be as simple as possible to accelerate adoption.
ERC-4337 lays the technical foundation to support creative crypto wallets. What developers build based on this could change the main point of contact between cryptocurrencies and users. Regardless of this, the impact that ERC-4337 will have on the user experience and the crypto space in general is something to keep in mind in the coming years.
Further reading:
Introduction to ERC-20 Tokens
What is Ethereum?
What is the Ethereum Shanghai Update and how will it affect me?
What is EIP-4844 on Ethereum and how can it benefit users?
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