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In their quest to bring over one billion users on-chain, crypto exchange Coinbase has released a key piece of technology called smart wallets, expected to make crypto experiences more seamless than ever.
The complexities involved in using and managing cryptocurrencies have been a major hindrance to its global adoption. Now, a new line of crypto wallets is taking over the world, which will remove the biggest pain points of the crypto experience while allowing users to keep full custody of their crypto assets.
What are smart wallets? How to create a Coinbase smart wallet? Let’s find out.
Key Takeaways
- Smart wallets are created on-chain and are powered by smart contracts.
- Initiatives such as Coinbase’s smart wallet are expected to completely change how users experience web3 websites.
- dApps will now be able to offer gasless experiences to smart wallet users, who are protected by passkeys.
- You will lose access to your smart wallet if you lose the device that stores your wallet passkeys or if you accidentally delete the passkey from your cloud.
Smart Wallet vs Traditional Crypto Wallets
First, let’s understand how smart wallets differ from traditional self-custodial crypto wallets.
Smart wallets are crypto wallets that are created on-chain and are powered by smart contracts.
Meanwhile, traditional crypto wallets, also known as Externally Owned Accounts (EOA), are created off-chain and are controlled by private keys.
The biggest difference between the two is the use of smart contracts that allow smart wallets to implement any custom logic.
I'm really excited by this year's onchain UX and tech improvements, and I think smart wallets will mark a new era for our industry.
Mass adoption by consumers, businesses and institutions will happen once experiences are user-friendly, familiar, and uniquely add value.
Smart… https://t.co/yKMkZTFkZs
— Sarah Wolf (@sarahzorah) June 5, 2024
Coinbase Prepare for Smart Wallets Across the World
Smart wallets have been under development for a few years now. Coinbase’s smart wallet is not the first to land on the market. However, it is the most significant one to date because of Coinbase’s sheer influence as one of the most popular crypto companies in the world.
Not only is Coinbase’s crypto exchange the biggest one in the U.S. by trade volume, but its self-custodial crypto wallet is used by millions across the world.
Additionally, the launch of Ethereum (ETH) layer two (L2) chain Base by Coinbase in 2023 has put the company in the prime spot to introduce the on-chain and self-custodial crypto world to users who have never ventured beyond centralized crypto exchanges.
In the past, many crypto users have been discouraged from adopting self-custodial crypto wallets due to tedious secret recovery phrases management, multi-step onboarding process, and complex gas payments.
If the tide is right, smart wallets will completely change how users experience web3 websites and decentralized applications (dApps) by ‘abstracting away‘ technical complexities and replacing them with familiar experiences like the internet we know today.
“On-chain app developers today lose many of their new users during the onboarding process when they leave the app to go install and fund a separate wallet,” said Coinbase.
No more recovery phrases to write down – hello passkeys 👋. Next generation tech that helps us eliminate those 12 words. Sign with just a fingerprint or FaceID or a yubikey. Backed up automatically and securely with iCloud or other passkey providers. pic.twitter.com/V90BPQTGWI
— Sid Coelho-Prabhu | sidcoin.eth 🛡️ (@sid_coelho) June 5, 2024
How Will Smart Crypto Wallets Aid On-chain Adoption?
According to Coinbase, smart wallets will make the transition to on-chain “smoother than ever.” Here is how smart wallets will change crypto self-custodianship and on-chain experience for the better:
- Easy setup — Farewell to 12-word secret recovery phrases that you wrote down in your diary. Say goodbye to downloading a wallet app on your phone and a separate browser extension on your laptop. Coinbase smart wallets are created in a one-step process using passkeys that will be available on all devices and the cloud.
- Easy payments — Smart wallet users will be able to spend crypto assets held on their Coinbase account via a feature called Magic Spend.
- Gasless payments — Techopedia considers this a rare gamechanger in the industry. DApps will now be able to offer gasless experiences to smart wallet users using paymaster smart contracts. These smart contracts allow DApps to pay gas fees on behalf of their users.
How to Create a Coinbase Smart Wallet?
You can create your new Coinbase smart wallet here. It is a one-step process that will allow you to instantly create a crypto wallet.
Google Chrome on Mac offered U.S. the option to create passkeys on: device, iCloud Keychain or Chrome profile.
Meanwhile, Safari on Mac directly saved the passkeys on iCloud Keychain which was automatically available across all my Apple devices.
According to Coinbase, existing Coinbase Wallet users will soon be able to use smart wallets inside the Coinbase Wallet app in the coming months.
At the time of writing, Coinbase’s smart wallet supported eight networks: Ethereum, Base, Optimism, Arbitrum, Polygon, Avalanche, BNB and Zora.
Can I Lose Access to my Smart Wallet?
Can you lose access to your smart wallet? Sadly, the answer is yes.
Smart wallets are secured by passkeys. Passkeys are passwordless digital credentials that allow users to authenticate without having to enter a username or password or provide any additional authentication factor.
Passkeys are stored on your device or on your cloud password management systems like iCloud Keychain.
You will lose access to your smart wallet if you lose the device that stores your wallet passkeys or if you accidentally delete the passkey from your cloud.
“Without your passkey, no one can recover the wallet for you. Please avoid bulk clean-ups and deletions of passkeys to avoid accidental deletion,” said Coinbase.
On Apple devices, you can airdrop your wallet passkeys to nearby devices.
The Bottom Line
If you want non-crypto people to use crypto, you have to make it easy. The launch of smart wallets marks a significant milestone for the crypto industry.
For a long time, industry experts and enthusiasts have pleaded with developers to focus on user experience. Their pleas have finally been heard.
