In the world of Web3, self-custody wallets are the key to managing crypto assets - enabling users to access and interact with dApps, store digital assets, and participate in DeFi.
Traditional wallets rely on private keys for accessing funds. While private keys give users control of their assets, managing complex seed phrases and navigating all the security risks in Web3 is still a significant barrier to entry.
Enter smart contract wallets, a new evolution in the space that leverages smart contracts to manage crypto assets, enabling automated transactions, customizable recovery options, enhanced security, and advanced management features.
What exactly is a smart contract wallet, and what are the advantages and drawbacks? In this post we’ll cover everything you need to know about smart contract wallets.
What are smart contract wallets?
A smart contract wallet is more than just a place to store digital assets, it’s a type of non-custodial wallet that leverages smart contracts to manage digital assets.
Unlike conventional wallets, smart contract wallets can execute complex transactions and implement advanced features through self-executing, programmable code. Instead of controlling the wallet with a private key, the user controls a smart contract which holds the funds.
Smart contract wallets aim to reduce the complexity of interacting with blockchains, with the potential to revolutionize the user experience and bring the next wave of users onchain.
The pros of smart contract wallets
Smart contract wallets unlock a variety of new features that simplify and improve how users interact with apps - including recovery options, transaction automation, and more.
Customizable approvals: One of the main advantages of smart contract wallets is their ability to set specific rules for who can access the wallet. For example, multi-signature approvals can be utilized, requiring multiple parties to sign off on transactions, providing an extra layer of security.
Recovery Options: Smart contract wallets can also utilize passkeys and social recovery. Passkeys remove the need for remembering or storing complex seed phrases, while social recovery allows trusted contacts to help recover the wallet in case the primary user loses access, significantly reducing the risk of losing funds.
Seamless gasless experiences: Apps can leverage smart contract wallets to pay for gas on behalf of their users, enabling seamless gasless experiences and a wide variety of new use cases.
Automated actions: Smart contract wallets allow for automated transactions, like handling recurring payments, staking, and yield farming. Users can also set a daily transaction limit, white or blacklist addresses, and bundle transactions into one.
Auto-create wallets for users: Apps can auto create new non-custodial wallets for users when they sign up or use their platform for the first time, removing the need for users to store or remember seed phrases and enabling smoother onboarding into Web3.
The cons of smart contract wallets
Despite the benefits of smart contract wallets, there are some trade-offs:
Require gas to create: One major downside is, unlike traditional wallets, smart contract wallets cost gas to create as a smart contract must be executed onchain.
Smart contract vulnerabilities: The use of smart contracts introduces an additional layer of risk, as smart contracts can be exploited. If there is a bug or security flaw in the code, it could lead to a loss of funds. Though audits can help mitigate these risks, no system is entirely immune to bugs or exploits.
The future of digital asset management
Smart contract wallets represent the next evolution in digital asset management, offering a level of customization, security, and automation not available with traditional wallets.
For users active in DeFi, frequently interacting with apps, or looking for advanced security features like multi-sig and social recovery, smart contract wallets offer a compelling new wallet option. And for users who are new to the space, smart contract wallets offer a safer entry into the world of Web3.
At the same time, smart contract wallets also enable new use cases and exciting opportunities for developers, with the ability to build seamless gasless experiences, smoother onboarding flows, and more.
Serious swaps for serious onchain apps
With smart contract wallet adoption picking up steam, offering swaps with support for these wallets in your app has become a necessity.
0x v2 makes it easy to embed swaps into your app with support for smart contract wallets.
Integrate smart contract and multi-sig wallets with our quick start guide today.
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