The biggest challenges faced in onboarding new users to blockchain-related technologies are linked to complexity and lack of security. Therefore, there is a great expectation for updates and new tools to solve problems in these two areas.
And an incredible novelty has just been announced on the Ethereum network that will greatly expand development possibilities, making it much easier and safer to buy, store and use cryptoassets. There are still some points of attention, and it will take a few more steps before we see a significant change. But something big is about to begin!
We know that we are pioneers in a segment that is far from realizing its potential. Necessary and disruptive innovations are launched frequently, and we are sure that the best is yet to come. But at the event held in Denver a few days ago, the Ethereum network announced a novelty that could represent a big leap forward!
This new functionality has the potential to revolutionize the crypto market. In this Report, we are going to explore what ERC-4337 is, how it works and how it can be applied in different use cases. In addition, we will understand what are your weaknesses and opportunities for improvement. Let's go!
What is ERC-4337?
ERC-4337 is a new token standard on the Ethereum network that implements account abstraction to allow smart contracts to pay transaction fees more efficiently. With ERC-4337, users no longer need to pay transaction fees in ETH, as fees can be paid in any token supported by the network.
This new functionality allows dApp developers and users to have a smoother and less complicated experience when using Ethereum. ERC-4337 represents an important evolution of the Ethereum protocol, allowing the network to become more flexible and scalable for the development of decentralized applications, in addition to reducing the volatility of ETH.
How does it work?
ERC-4337, works by allowing smart contracts to control Ethereum accounts, rather than being controlled by individuals or companies. Essentially, the protocol allows a smart contract to serve as an Ethereum account, meaning the contract can be used to send and receive ETH, in addition to other functionality.
By using smart contracts as accounts, ERC-4337 makes interacting with the Ethereum network more secure, reliable and scalable as it eliminates the need for intermediaries and increases the efficiency of the network. Furthermore, the protocol can be used to create new types of transactions on the Ethereum network, such as non-custodial trading transactions, making the Ethereum ecosystem even more powerful and versatile.
Advantages of the ERC-4337
With the new standard ERC-4337 for smart accounts, the adoption of cryptocurrencies and NTFs can be made easier and accessible for everyone. Smart accounts allow traditional wallets to be used as programmable smart contracts with custom capabilities, offering various advantages to users. Here are some of them:
Interoperability: the new allows interoperability between different blockchain networks, enabling the transfer of tokens between platforms without the need for complex technical integrations. This increases the token's liquidity and opens up new use cases for it;
Accessibility: Designed to be more accessible to developers, making it easier for them to build applications and platforms that use the token. This results in a whole new range of use cases;
Security: The ERC-4337 has enhanced security features such as built-in authentication and encryption mechanisms to protect users and platforms from intrusion and fraud. This leads to more trust and security in the ecosystem;
Customization: the new standard allows for greater customization of token characteristics, such as supply, distribution, and governance mechanisms. This helps developers create tokens tailored to specific use cases, making them more useful and valuable;
Transparency: There are built-in transparency features, such as public transaction logs and auditable smart contracts, which provide greater visibility into token circulation and usage;
Cost reduction: ERC-4337 enables lower transaction fees, making it more affordable for users to transfer and exchange tokens. This can attract more users;
Efficiency: Designed to be more efficient, with faster processing times and lower power consumption. This results in a more sustainable option and faster transactions.
These advantages of the new token standard make it a more attractive option for developers, investors and users, ultimately leading to wider adoption and increased value.
Risks and points of attention
Of course, there are also risks and points of attention that need to be considered. But without a doubt, the ERC-4337 utilization potential is incredible and makes it worth surpassing them:
Higher costs: While the ERC-4337 includes features that have the potential to reduce transaction costs, the opposite could also happen, depending on the volume and form of adoption. It allows for more complex transactions, which can result in higher costs for users. The large-scale adoption of the token will depend mainly on the implementation of scalability solutions, especially in second layer networks;
Need for more infrastructure: For a wide adoption of the ERC-4337, more processing capacity in the network would be required, which would imply the need for a leap in infrastructure and technical knowledge;
Centralization concerns: Fewer validators can lead to centralization, with fewer participants having control over transactions. However, this market will likely settle the offer quickly with better rewards;
Technical Challenges: Implementing ERC-4337 can pose significant technical challenges, including the need to upgrade existing infrastructure and the creation of new tools and solutions to ensure security and efficiency. In a landscape where developers are already in short supply, this could be a huge problem;
Regulatory Uncertainty: As with many cryptocurrency and blockchain innovations, there is regulatory uncertainty surrounding ERC-4337 and its impact on the Ethereum ecosystem and the industry at large. It will take some time to figure out how it will be used and how regulatory agencies will view it.
Possible use cases
ERC-4337 allows users to use their tokens without needing to own ETH to pay transaction fees, among other amazing new features. All of its features mean that it can be used for a variety of use cases, such as:
Payment of Transaction Fees: The account abstraction feature allows users to pay transaction fees directly with the ERC-4337 token, making the transaction more accessible and user-friendly;
Access to Decentralized Applications: The ERC-4337 can be used as a means of access to decentralized applications, allowing users to use their tokens to buy and sell products and services on a platform without the need to own ETH;
Resource Management: The ERC-4337 can be used for resource management in decentralized applications, allowing users to have control over their tokens and access resources such as storage and processing;
Liquidity: With account abstraction functionality, the ERC-4337 can be used as a medium of exchange on decentralized trading platforms, increasing the token's liquidity and allowing users to exchange the token without the need for ETH
And many other possibilities for using and expanding the ERC-4337's potential should emerge. That's why there was such a positive response and so much anticipation was created around the use of the new token standard.
Keep an eye on Ethereum
The importance of this new functionality is that it increases the usability and accessibility of the Ethereum network, making it more attractive to developers and users. It is one of the top blockchains on the market, with many projects built on top of it, making new functionality even more important to the entire blockchain ecosystem.
Finally, it is essential to mention that there is another significant upgrade coming for Ethereum: Shanghai. This upgrade will bring significant changes including performance and security improvements and is scheduled to take place on 4/12/23. Therefore, it is worth keeping an eye on Ethereum and its upcoming updates.