A beginner’s overview of the ERC-4437 token update and how it affects the Web3 ecosystem.

A beginner’s overview of the ERC-4437 token update and how it affects the Web3 ecosystem.

Before we start to understand how ERC (Ethereum request for comment) tokens work, we need to understand what EIPs (Ethereum improvement proposals) are.

EIPs are standards specifying potential new features or processes for Ethereum*.
*All network upgrades and application standards undergo the same EIP process. Moreover, anyone in the community can propose EIPs and then multiple stakeholders will decide if it should be implemented as a standard or it should be included in a network upgrade. The difference is that non-core EIPs do not have to be adopted by all applications.

Moving on to the second step of understanding the ERC-4337 token.

Understanding account abstraction.

Account abstraction is the process of making it easier for users to interact with blockchain by customizing certain elements of smart contract accounts, from fee payment methods to transaction approval mechanisms.

This proposal is to allow users to use smart contract wallets instead of EOAs (Externally Owned Accounts)

In 2021, finally, EIP-4337 was proposed which enabled the following features:

  • Define your own flexible security rules.

  • Able to pay someone else’s gas or allow someone to pay your own.

  • Share account security across trusted devices.

  • Batch transactions together

  • More opportunities for wallet developers to create a better user experience.

Along with this EIP-4337 introduced a ‘pseudo-transaction’ object called a “userOperation’’; a structure that describes a transaction to be sent on behalf of a user. These User operations go into an “alt mempool” which is basically a lobby for storing information on unconfirmed transactions.

Moreover, nodes on the Ethereum network can act as a ‘bundler’. These extract user operations from the mempool and put them together to create a ‘bundle transaction’. The bundler pays the fee for the bundler transaction in ETH, which later on gets compensated by the fees paid by the individual userOperations executions.

Now, a global “singleton” smart contract known as the “EntryPoint” comes into play. The bundler calls a function on the EntryPoint smart contract called handleOps.

Now, a function validateUserOp verifies the user’s signature and pays the fee if the account deems the transaction as valid.

Here is a simplified flowchart to understand this process as well.

Now that we have understood how account abstraction works, let us see the pros and cons ERC-4337 will bring to the ecosystem.

Here are the pros:

  • Wallet upgradability — wallets can change their public keys or upgrade their code entirely (only if published with DELEGATECALL)

  • Verification flexibility — new signature schemes can be added using the validateUserOp

  • Sufficient to make execution layer quantum-safe — Users can individually upgrade their wallets to quantum-safe ones. Even the wrapper transaction is safe, as the miner can use a new freshly created and hence hash-protected EOA for each bundle transaction and not publish the transaction before it is added to a block.

  • Wallets can add custom logic for the execution step.

This upgrade also brings a few drawbacks namely:

  • Gas overhead — relatively more gas overhead than regular transactions

  • Increased DoS vulnerability because verification logic is allowed to be somewhat more complex.

  • Accounts cannot queue up and send multiple transactions at the same time in the mempool.

In conclusion, ERC-4337 offers an innovative solution to the challenges of decentralized finance (DeFi) and the interoperability of different blockchain networks. With its unique design that enables trustless cross-chain transactions, ERC-4337 has the potential to significantly enhance the efficiency and security of DeFi transactions, while also promoting greater adoption of blockchain technology.

By creating a standard for cross-chain bridges, ERC-4337 ensures that developers can easily integrate interoperability into their decentralized applications. This will allow for a more seamless experience for end-users who will be able to interact with different blockchain networks without needing to switch between different wallets or applications.

Overall, ERC-4337 represents a significant step forward for the DeFi industry, and its potential impact on the broader blockchain ecosystem cannot be overstated. As the blockchain landscape continues to evolve, interoperability and cross-chain transactions will become increasingly critical, and ERC-4337 is well-positioned to lead the way in this exciting new frontier.