This article first appeared in Digital Edge, The Edge Malaysia Weekly on March 11, 2024 - March 17, 2024

Account abstraction is poised to accelerate Web3 adoption by addressing a critical barrier: complexity. Account abstraction, which simplifies managing diverse assets through a single account, promises to streamline processes and mitigate complexity.

Lixin Liu, CEO of Account Labs, tells Digital Edge that account abstraction addresses many usability and security challenges surrounding decentralised wallets or accounts.

Essentially, account abstraction utilises smart contracts, or lines of code that drive operations in blockchains, and develops them into wallets. Because the smart contract is directly programmable, developers can programme more functionalities into wallets. This allows developers to remove many operational layers that create friction when executing transactions across different blockchains, as well as other operational bottlenecks that the average consumer does not want to think about when using his or her wallet.

“With account abstraction, users do not have to understand or manage what happens in the background when they execute transactions. Instead, it is similar to when users send cash to a friend via TnG or DuitNow after dinner,” Liu explains.

“Account abstraction means the wallet itself does all the work, so users do not have to. This reduces the fairly high barriers to entry that Web3 wallets were suffering from previously, and opens the door for wider Web3 adoption.”

While there are many use cases for Web3 wallets, such as gaming and cross-border payments, the adoption and usability of traditional Web3 wallets have faced considerable challenges to date. That is because most Web3 wallets are too complex, with users facing high technical barriers. They would need significant knowledge of and familiarity with the workings of Web3 to execute even simple transactions.

The first major challenge users face with Web3 wallets is managing their private keys. A private key is a string of random words such as the “seed phrase” or “recovery phrase” that confirms the owner’s identity, something like a password.

This is a key aspect of most Web3 wallets as private keys ensure that only the wallet owner has exclusive control over the assets, and remove any reliance on a third party to safeguard funds. However, safely storing recovery phrases poses a significant hurdle for users unfamiliar with the Web3 space.

“If any users lose or forget their recovery phrase, they lose access to their assets forever. This is a high-risk factor that most wallet users are not willing to accept,” says Liu.

Another major challenge is the high gas fees.

“During network congestion, these fees can surge significantly, which is daunting for mainstream users, leads to unexpected costs and hinders the broader adoption of Web3 wallets. However, account abstraction is a solution to both issues,” he says.

Account abstraction in the Web3 ecosystem is a win-win for end-users and developers, says Liu.

For end-users, account abstraction simplifies the user experience dramatically by eliminating the need to manage complex cryptographic processes directly. That is all while still providing the same enhanced security and privacy of self-custody wallets, allowing users to retain full control of their assets without the need to have a third party control their funds.

For developers, account abstraction allows them to programme more functionality directly into wallets, enabling greater innovation and competitiveness in a fiercely contested marketplace. Due to the advances made in the user experience, account abstraction also provides developers a route to a larger user base.

Furthermore, account abstraction enhances interoperability by enabling different blockchain networks and protocols to interact seamlessly. Developers can build applications that leverage multiple blockchains without requiring users to manage distinct sets of keys for each network, promoting a more cohesive and interconnected Web3 ecosystem.

The major barriers to mainstream cryptocurrency adoption are related to ease of use and perceived safety and trustworthiness of Web3 services, says Liu.

For example, transactions denominated in cryptocurrencies face major risks related to pricing volatility. While this is also true for some fiat currencies, it is still a risk that many consumers are not willing to take when it comes to everyday transactions.

One of the ways to increase trust in cryptocurrency adoption is by using stablecoins. Account Labs recently launched a new smart wallet product, UniPass wallet app, that allows users to leverage their Google accounts to set up a Web3 wallet. This simplifies the user experience by eliminating the need to remember a seed phrase.

“Stablecoins avoid pricing volatility by being pegged to a trusted fiat currency, and so remove the speculative trading aspect we see with other cryptocurrencies such as Bitcoin and Ethereum. Fiat-backed stablecoins are therefore easier for non-Web3 native users to grasp, and therefore to trust,” says Liu.

“We see stablecoins as the best way to onboard the next billion users into crypto, from cab drivers in Turkey to gig workers in Southeast Asia. That is why the UniPass wallet app is focused on stablecoins.”

Interestingly, as traditional finance players are becoming more active in the crypto finance industry, stablecoins are increasingly seen as an inoffensive, neutral ground that everyone is happy to work with.

Web3 gaming set the foundation for crypto adoption in Southeast Asia among young early adopters. Following this, stablecoins play a crucial role in initiating genuine mass adoption.

Using UniPass as an example, the wallet harnesses Ethereum’s account abstraction technology to remove most of the major headaches and obstacles that make Web3 wallets intimidating to new users who are unfamiliar with Web3.

In contrast to traditional self-custody wallets such as MetaMask, the UniPass wallet does away with complex 12-word seed phrases required to log into most Web3 wallets. Instead, the wallet enables users to simply use their Google account to set up and log into a fully self-custody Web3 wallet, with no Web3 knowledge required. This massively lowers the barrier to entry for users who are not familiar with Web3.

Furthermore, account abstraction enables UniPass wallet users to facilitate “gasless” transactions. Usually when sending a crypto transaction, users have to pay the “gas” fee in the native token of whichever blockchain they are using. With account abstraction, users can simply pay transaction fees in stablecoins like US Dollar Coin and USDT (Tether). This enables the UniPass wallet to offer ultra-low fees, because paying transaction fees in stablecoins rather than native tokens can bring the cost down to as low as one or two US cents per transaction.

Users can also top up their UniPass wallet directly with Mastercard, Visa or Apple Pay. They can then send stablecoins directly to other Web3 wallets.

“While being easier and cheaper to use, the UniPass wallet remains a self-custody wallet, meaning users retain full control of their funds in a decentralised and trustless environment,” says Liu.

“Furthermore, there are no middlemen collecting fees or slowing down the process, as you get in Web2 transactions. This significantly improves the ease of executing instant cross-border transactions and offers a major upgrade for gig workers in emerging markets.”

Another approach to ease the onboarding process for regular consumers is to integrate with the apps and services that the users are already using. UniPass is currently on Android, with iOS support set to follow. There are plans to expand to Apple ID and other social media logins.

The most notable challenges of traditional finance are high transaction fees and slower processing times.

“Over the past decade, I have worked in roles related to smart devices and international business operations, during which I have personally experienced the shortcomings of traditional payment systems, particularly in the context of international money transfers. I have come to appreciate alternative payment solutions that transcend the limitations of traditional systems and this has fuelled my passion for driving positive change through blockchain technology,” says Liu.

Crypto and blockchain technology aim to address these issues by offering faster transaction speeds and lower fees, in particular to enable more people in emerging markets to access world-class financial solutions.

As blockchain technology matures, scalability solutions such as layer 2 protocols and user experience solutions such as account abstraction are being developed to enhance transaction throughput and UI/UX, while still maintaining security. There is also progress being made in interoperability between different blockchain networks.

“As we work to create a more connected and accessible ecosystem that enables smoother interactions between and transfer of assets across various blockchains, we believe that more businesses and individuals are likely to adopt blockchain technology for various use cases beyond pure speculation, starting from the substantial remittance markets in Southeast Asia,” says Liu.

“At Account Labs, we are dedicated to the core principles of Web3, with a focus on promoting financial inclusivity and accessibility. We have developed the UniPass wallet to address the growing demand for cost-effective, instant and cross-border currency transfers.”

The demand has risen due to concerns about rising inflation and currency volatility, as well as eroding trust in traditional fiat currencies, including the US dollar. Consequently, consumers are increasingly open to exploring cryptocurrency-based financial solutions.

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