Account Abstraction

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What is Account Abstraction in Blockchain?

Account abstraction is a technology that enables users to use smart contracts to manage wallet accounts and allows decentralized applications (dApp) to pay gas fees on behalf of their users.

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In simple terms, account abstraction is a solution that looks to improve crypto user experience (UX) by eliminating the need to create traditional externally owned accounts (EOA) which are complicated to set up, use and maintain.

In this definition, we explain why account abstraction in crypto is important.

What is Account Abstraction

Key Takeaways

  • Account abstraction is a solution that looks to improve crypto user experience.
  • The technology introduces smart wallets that can be set up using passkeys and without having to download browser extensions and mobile apps.
  • Account abstraction also enables gasless transactions.
  • Coinbase introduced smart wallets in June 2024. These wallets are created onchain and powered by smart contracts.
  • Ethereum L2 chain Starknet implements native account abstraction, which means that all accounts on Starknet are smart accounts.

History of Account Abstraction and Its Importance

In order to understand what is account abstraction in Web3, we need to talk about UX problems that crypto users have been facing for years.

A first-time Web3 user needs a self-custodial crypto wallet to explore the world of decentralized finance (DeFi). The issue here is that there are too many friction points related to crypto wallet use resulting in many crypto investors shying away from the DeFi world.

Firstly, the management of crypto wallet seed phrases is seen as a tedious process. Every EOA crypto wallet requires users to safely secure a 12-word or 24-word seed phrase during setup.

Secondly, new users are not used to the concept of gas fee payment. But without paying gas fees, users cannot initiate onchain transactions. The need to acquire native tokens to pay for gas is a deterrent to DeFi adoption.

To solve these crypto UX problems, Ethereum (ETH) core developers proposed an Ethereum Improvement Proposal (EIP) named ERC-4337 in September 2021 to introduce account abstraction.

According to ERC-4337, the key goal of account abstraction is to completely remove the need for users to have traditional EOA wallets. Smart contracts wallets containing arbitrary verification logic are to be used instead.

Components of Account Abstraction: How Does Account Abstraction Work?

Here is a technical explanation of how account abstraction works on Ethereum.

According to ERC-4337, account abstraction introduces a new type of transaction called UserOperations which are not sent to the traditional Ethereum mempool before being finalized. Instead UserOperations transactions are sent to a different mempool meant specifically for them.

Here network participants known as Bundlers group multiple UserOperations transactions and send them to be verified.

ERC-4337 also introduces a smart contract known as the EntryPoint contract. This contract verifies and executes UserOperations transactions sent to it. Only one EntryPoint contract can exist on a chain.

Once verified, the transactions are included in the next Ethereum block by bundlers.

As we discussed earlier, account abstraction uses smart contract wallets instead of EOA wallets. Smart wallets are created by a smart contract called Account Factory contract.

Additionally, account abstraction also uses an optional smart contract account called Paymaster which enables applications to sponsor gas fees on behalf of users.

Paymaster enables gas abstraction on Ethereum. They also allow users to pay gas fees in ERC-20 tokens instead of native ETH tokens.

How Account Abstraction on Ethereum Works

Account Abstraction Wallets

Smart contract wallets or smart wallets used in account abstraction are designed to function similarly to traditional EOA wallets like MetaMask.

Users can send tokens to their smart wallets as long as they know their correct wallet address. These wallets are also designed to be compatible with all blockchains that use the supported virtual machine (VM) (eg. EVM and SVM).

A key benefit that smart wallets offer over traditional EOA wallets is that users do not need to download a browser extension or a mobile app to set up a smart wallet.

Instead, smart wallets can live on your browser and can be set up and accessed using passkeys that are stored in your device.

Benefits of Account Abstraction

Here are the benefits of account abstraction:

  • Account abstraction improves crypto user experience
  • Smart wallets remove the need to manage and secure seed phrases used in traditional EOA wallets
  • Users do not need to download browser extensions or mobile apps to set up a smart wallet
  • The use of passkeys in smart wallets allows seamless Web3 logins
  • Paymaster enables gasless fees for end users
  • Paymaster allows users to gas fees with non-native tokens
  • Users do not have to go through the hassles of acquiring native tokens to pay for gas fees
  • Gasless transactions allow users to preserve their privacy as they do not have to send native tokens from a KYC‘ed wallet or CEX to pay for gas fees
  • Account abstraction on Ethereum avoids the need for consensus layer protocol changes

Real-World Applications of Account Abstraction

Here are the real world applications of account abstraction.

Coinbase Introduces Smart Wallets

In June 2024, crypto exchange Coinbase introduced smart wallets that are created onchain and are powered by smart contracts. The company touted the smart wallet launch as a means to bring “a billion people” onchain due to its improved UX benefits.

Coinbase smart wallet can be created at the click of a button. Users can access their smart wallets using Face ID, Touch ID, Yubikey or Google Chrome profile.

Starknet Implements Native Account Abstraction

Ethereum layer two (L2) chain Starknet (STRK) is known to implement native account abstraction, which means that all accounts on Starknet are smart accounts. Starknet does not support EOAs. All the infrastructure and decentralized applications on Starknet are designed and built for account abstraction.

In addition to fee abstraction, Starknet enables signature abstraction which gives users the freedom to customize account permissions.

Gasless Stablecoin Transfers

Coinbase offers gasless transactions on USD coin (USDC) and EURC stablecoin transfers on Ethereum L2 Base mainnet and Base Sepolia testnet.

Users can transfer these stablecoins without having to worry about acquiring native ETH tokens to pay for gas.

The Bottom Line

By removing friction points and concealing the complex underlying mechanism of blockchains, account abstraction aims to make Web3 as seamless as the Internet that we know today.

As the crypto industry looks to enter its next phase of growth, UX-focused technologies like account abstraction are crucial if cryptocurrency and decentralized finance is to see mass adoption. We hope that Techopedia’s account abstraction definition helps you understand how you can improve your crypto experience.

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Mensholong Lepcha
Crypto Specialist
Mensholong Lepcha
Crypto Specialist

Mensholong is a experienced crypto and blockchain journalist, now a full-time writer at Techopedia. He has contributed with news coverage and in-depth market analysis to Capital.com, StockTwits, XBO, and other publications. He began his writing career at Reuters in 2017, covering global equity markets. In his spare time, Mensholong enjoys watching soccer, finding new music, and buying BTC and ETH for his crypto portfolio.