Simplifying Ethereum’s ERC-4337: The Future of Crypto Payments using Smart Contract Wallets

MV Global
6 min readMay 26, 2023

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Introduction

Every so often, the digital world witnesses a game-changing innovation, a shift that promises to fundamentally reshape how we operate in the virtual ecosystem. Enter ERC-4337, Ethereum’s new standard proposal that’s set to revolutionize how we handle transactions on the platform, a leap as significant as transitioning from a basic cell phone to a state-of-the-art smartphone. In this article, we will delve into the nuts and bolts of this innovation and understand its implications in layman’s terms.

Understanding ERC-4337

At its core, ERC-4337 is a new set of instructions designed to handle Ethereum transactions more effectively and flexibly. Traditionally, to perform transactions on the Ethereum platform, one had to engage in a manual setup and pay a gas fee (a blockchain ‘transaction’ fee). With ERC-4337, the process gets a significant upgrade.

To truly grasp the impact of ERC-4337, let’s imagine you’re at a coffee shop, wanting to buy a coffee using your $ETH. Under the old system, you had to manually initiate the transaction and bear the gas fee, which could fluctuate and sometimes be quite high. It’s similar to you needing to call the telephone operator, dictate the phone number you wish to call, and pay for each minute spent on the call.

Source: Visa.com

Enter ERC-4337, akin to you possessing a smartphone with a direct dialing facility and a fixed monthly plan. Instead of going through the operator, you can now dial the number directly and enjoy your conversation without worrying about the length of the call. This convenience is made possible by a new type of Ethereum wallet called a ‘smart contract wallet’.

Source: Midjourney

Smart Contract Wallets: The Supercharged Wallets

Smart contract wallets, as proposed by ERC-4337, are advanced versions of regular wallets, and they come with several exciting features. Much like your smartphone can do more than just call and text, these wallets can perform multiple functions that were previously complex or impossible.

One major feature is the ability to automatically pay for the transaction fee on your behalf. In our coffee analogy, this is akin to a system where your phone’s mobile app handles the tip to the barista, without you needing to calculate or handle cash. Or even better, you could set it up so that the coffee shop pays the transaction fee. So your coffee costs exactly what the menu says, with no extra fees. That’s like having a friend who always has spare change and is willing to pay the parking meter for you!

In addition, these smart contract wallets enable you to use different types of currency (other than Ethereum) to pay the gas fee, much like how modern wallets can hold multiple currency types. They can also set up a system where a third party pays the fee for you.

Moreover, they allow for several transactions to be conducted simultaneously. Think about buying coffee, tipping the barista, and adding money to your loyalty card, all in one swipe or click. This multi-functionality was harder to achieve with the old system.

The Magic Behind ERC-4337: UserOperations and Account Abstraction

Source: Visa.com

To make all these features possible, ERC-4337 introduces something called a ‘UserOperation’, and it works on a principle called ‘account abstraction’.

Imagine ‘UserOperation’ as a special envelope for your transaction. You put all the details of your transaction into this envelope, including who’s involved, what you’re doing, and how much gas fee you’re willing to pay. Then, you send this envelope off to a special pool, much like a mailbox called the ‘mempool’. From here, special actors called bundlers pick up your envelope, bundle them together with others, and process them all at once. It’s like having a personal assistant who takes your coffee order, pays for it, tips the barista, and even tops up your loyalty card, all at the same time. This is the magic of ‘UserOperation’.

The idea of ‘account abstraction’ is another pivotal component of ERC-4337. In the Ethereum network, traditionally, transactions are carried out using basic accounts known as Externally Owned Accounts (EOAs). Think of EOAs as basic coffee mugs; they can hold your coffee, but that’s about it. On the other hand, the smart contracts that ERC-4337 promotes are like insulated, spill-proof travel mugs; they can not only hold your coffee but also keep it warm and prevent it from spilling.

By enabling account abstraction, ERC-4337 allows users to have accounts with much more complex logic and capabilities, just like a smart travel mug offering more features than a basic mug.

Real-World Implementation: Visa’s Trial Paymaster Contracts

Source: Visa.com
Source: Visa.com

To bring ERC-4337 closer to reality, Visa has introduced trial Paymaster contracts on the Ethereum Goerli Testnet. This initiative has opened the door to the possibility of users paying transaction costs with different tokens, such as stablecoins tied to the dollar or potentially even a Central Bank Digital Currency (CBDC) in the future.

Let’s go back to our coffee shop. Imagine being able to pay for your coffee not only with your usual currency but also with loyalty points, coupons, or gift cards. Visa’s Paymaster contracts aim to bring this level of flexibility to Ethereum transactions.

To ensure that ERC-4337 compatible transactions operate smoothly, a test was conducted involving the deployment of a smart contract wallet and the transmission of user operations. The selected wallet, Trampoline Wallet, acted like a digital barista, verifying that users had enough funds to cover the transaction costs. Once the funds were confirmed, users could proceed to pay for transactions using their chosen tokens, much like choosing to pay with a gift card at a coffee shop.

The Future with ERC-4337: A Simplified Crypto World

With ERC-4337, the world of crypto transactions is set to become more efficient and accessible. Think of it as a coffee shop introducing a self-service machine: you can customize your order, pay using different methods, and even make multiple orders at once. All of this, without waiting in line or dealing with change.

In essence, ERC-4337 represents a significant leap forward in the realm of Ethereum transactions. By introducing smart contract wallets, promoting account abstraction, and facilitating flexible transactions, it offers an exciting preview of the future. As we continue to watch this space closely, it’s exciting to imagine a day when buying a coffee, or performing any transaction, with Ethereum is as simple, intuitive, and efficient as sending a text from a smartphone.

Just like a coffee shop constantly seeking to improve its services and customer experience, the Ethereum community continues to innovate, making the crypto space increasingly accessible and convenient for everyone.

As pioneers such as Visa carve a path through the emerging landscape of crypto payments, with trailblazers like Mastercard and PayPal hot on their heels, the horizon of this burgeoning industry shimmers with immense promise and untold potential.

As smartphone technology has become an integral part of our daily lives, so too could ERC-4337 become indispensable in our digital transactions. As more developers and projects start to implement this standard, the Ethereum ecosystem could become more user-friendly, paving the way for broader adoption of cryptocurrency in daily transactions.

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