What is Account Abstraction? Everything You Need to Know

cdLast Updated: July 29, 2024

3 minutes read

Account abstraction is the future of cryptocurrency.

You might have heard this phrase many times but aren’t sure what it exactly means. Today, let’s clear that up.

I’ll introduce you to a beginner’s guide to account abstraction—what it is, how it works, and how it will revolutionize cryptocurrency applications.

We won’t dive into the technical and implementation details of account abstraction (that’s a topic for later). Instead, this will provide a high-level overview and illustrate how account abstraction has improved the user experience in cryptocurrency over the past few years.

What is Account Abstraction?

Simply put, account abstraction is a set of frameworks and standards that significantly enhance the functionality of crypto wallets (accounts).

You can think of it as adding flight capabilities to a 1999 Honda Civic—it still functions as a car but can now do much more.

You might wonder why crypto wallets don’t come with these powerful features by default. The answer is that on some modern blockchains, they are quite powerful. However, for traditional blockchains like Ethereum, accounts were designed before we fully understood all their potential uses and flaws.

On Ethereum (and many EVM chains), we primarily use Externally Owned Accounts (EOAs). These are simple wallets that can only hold assets and initiate transactions. They are tied to a single private key and cannot perform complex operations.

At the same time, we have smart contracts, which are code executed automatically on the blockchain. Smart contracts can be programmed to perform almost any task.

Wouldn’t it be cool if we could add the flexibility of smart contracts to everyone’s crypto wallet? This is where Contract Accounts (CAs) come in—they are the core of account abstraction.

Contract accounts incorporate the limitless functionality of smart contracts into wallets, significantly enhancing their capabilities. These wallets can still hold funds but no longer rely on a single private key.

How Account Abstraction Works

In the past, if you lost your private key, it was equivalent to losing your wallet.

This experience is very poor for non-crypto users. With contract accounts, however, wallets can operate through multiple authentication methods instead of traditional private key signatures.

You can use fingerprint recognition, third-party providers (like Google, Apple), multi-signature, or different signature schemes for authentication.

Even if you lose the original private key, you can recover your account through preset methods.

There are many ways to build account verification. These methods not only enhance wallet security but also provide new functionalities through account abstraction (AA).

In Externally Owned Accounts (EOAs), all transactions must be paid with the native fuel token on-chain and must be paid by the initiator. Additionally, only one transaction can be performed at a time.

But with AA:

Transactions can be fully sponsored by a third party (usually the application).
Transactions can be paid with different tokens (e.g., using USDC instead of ETH).
Transactions can be batched to save gas fees and allow token swaps without separate approvals.

As you can see, AA can significantly improve the user experience of crypto applications. Previously, we were bound by rigid structures, making it cumbersome and difficult to get started with cryptocurrencies. Now, with AA, we can create user experiences comparable to or even better than traditional Web2 applications.

It’s important to emphasize that these smart contract accounts are still fully controlled by the users, with no third parties able to access their funds—all assets remain self-custodial.

What is the Current State of AA?

On EVM, proposals like ERC-4337 and EIP-7702 lay the groundwork for AA.

Today, many of the functions I mentioned have already been realized. However, transforming existing wallets into contract wallets still requires substantial work.