“Ether”. Image by Viktor Hachmang, provided by the Ethereum Foundation.

Ethereum’s next upgrade, Pectra, is intended to enable EIP-3074, a mechanism that makes it easy to add special features to traditional wallets. Among other things, they pay fees not in ETH, but in tokens such as stablecoins.

It is officially: EIP-3074 will be included in the Pectra upgrade, which will be activated in late 2024 or early 2025. Ethereum will thus receive another piece of the puzzle to complete “account abstraction”: ordinary accounts will be able to unlock functions that were previously reserved for smart contract wallets.

To understand all of this, we have to go back a little. A normal wallet on Ethereum is slightly derisively called EOA among developers, which stands for “Externally Owned Account” and has an undertone of “CD-Rom” or “keyphone.”

Since the activation of EIP-4337 in March 2023, smart contract wallets (SCW) have been available as an alternative to EOAs. Unlike the conventional wallets for Bitcoin, Ethereum and all other cryptocurrencies, this is not controlled “externally” by a user who holds a private key, but rather “internally” by a smart contract on the blockchain.

By becoming “smart”, the wallet allows various operations that were previously impossible or only possible with complexity: You can use “sponsored transactions” to pay the fees with other tokens, such as stablecoins, or from another party, such as the recipient. You can also set up a type of direct debit to connect credit cards to a non-fiduciary wallet. You can set up a variety of backup strategies – for example all types of “social revocery” through friends, relatives, notaries or other service providers – and you can program the wallet as desired, for example for spending limits or multisigs. And much more.

Smart contract wallets are definitely desirable and one can say that only with them will the promise of the “programmable wallet” really be fulfilled. Expectations were correspondingly high when EIP-4337 introduced a type of smart contract wallet. But demand is rather poor, and even a year later most wallets are still an EOA.

The developers attribute the reason for this slow market entry to the persistence of old wallets. You have ether, tokens, NFTs in your wallet, you have connected the wallet to various smart contracts, you have coins on different blockchains and rollups. Transporting all of this to a new wallet is not only time-consuming, but also expensive because of the many transactions required.

Delegating functions to smart contracts

The hope now is that EIP-3074 will be the game changer. The upgrade introduces two new operations (op codes), AUTH and AUTHCALL. The first allows a wallet to delegate certain tasks to a smart contract under certain parameters, usually the issuing of coins and tokens. The second allows the smart contract to perform these tasks instead of the EOA.

A normal wallet can use it to unlock smart contract functionalities by delegating certain competencies to an external smart contract. This is called an “invoker”.

EIP-3074 will make it possible for existing wallets to pay fees with tokens instead of Ether. The invoker can also bundle transactions from several users – thereby saving fees – or retroactively withdraw tokens from a wallet on behalf of a credit card provider. And so forth.

EIP 3074 could come in handy. By giving existing wallets the option to unlock additional functions, it could integrate relatively smoothly into the wallets instead of irritating users with too much effort like EIP-4337.

Does EIP-3074 introduce new gatekeepers?

However, there is also criticism of EIP 3074. One concern is that it introduces security problems. If the invoker, i.e. the smart contract that interacts with the user’s wallet instead of the user, has a security error, the balances of not just one but many users can be at risk. EIP-3074 not only threatens to undermine the solid security of blockchains tied to a private key, but also to do so for many users in one fell swoop. For this reason, wallets that allow invokers should be checked thoroughly and activated manually.

And it is precisely this solution to a security problem that may become one even bigger problem itself: Will overpowering wallets like Metamask control which apps and invokers are allowed to use EIP-3074? Will they further expand the role of gatekeeper that wallets already play? Is there a risk of cartels being formed, innovation being slowed down, or even regulation from within the wallet?

Another criticism of EIP-3074 is that, although it represents progress, it only achieves it halfway. This could not make it easier to redeem the full potential of smart account wallets in the future, as one rests on what has been achieved so far.

Martin Köppelmann from Gnosis brings this criticism to the point: Smart account wallets offer advantages in both user experience and security – both of which are desirable. However, EIP-3074 focuses almost entirely on the user interface. The many security benefits that account abstraction promises remain largely unrealized. After all, the private key continues to have unlimited control over the wallet.

EIP-3074 could make it even harder to implement Account Abstraction’s full potential in the future. Because if the pressure were removed, the community could be satisfied with half of what is possible. It would therefore have made more sense, says Martin Köppelmann, to introduce EIP-5003 based on EIP-3074, which would make exactly this possible. But that brings us to another topic.

What remains is that Ethereum users who do not yet use account abstraction but are stuck with their tried and trusted wallets will have the option to integrate smart contract elements into their accounts with the next hard fork at the end of 2024 or beginning of 2025 . And that, despite all the legitimate criticisms of the way this is happening, is a strong prospect.

Source: https://bitcoinblog.de/2024/04/22/eip-3074-soll-normale-ethereum-accounts-endlich-auch-smart-machen/

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