Smart wallets are non-custodial wallets controlled through smart
contracts that allow for an ecosystem of asset management features to be
built on top, such as transaction batching, signing in with a Web3 identity, a
multi-signature option, and recovery without a seed phrase, to name a few.
But before we get into specific smart wallet features, let's define what
smart contracts are.
What Are Smart Contracts?
A smart contract is an immutable self-executing contract between two
parties defined by a computer program where the terms are written into lines of
code. The execution results in a money exchange or service delivery, and is
processed on the blockchain without the need for a trusted intermediary. If the
predetermined conditions are not met, the contracts are not executed. As smart
contracts are commonly associated with cryptocurrencies, Ethereum's smart
contracts are widely regarded as a vital building block for decentralized
finance (DeFi) and NFT applications.
The Benefits of Smart
Wallets
Crypto is no longer just about securely storing but also putting assets
to use in a new economy. As more and more individuals turn to self-custodial
solutions, richer functionalities, easy-to-use interfaces, and absolute control
are becoming the norm. Here’s how smart wallets respond to that demand.
On-Chain Accountability
On-chain
signature authorization policies and aggregation make it explicit which keys
are used to sign a transaction, making operations more transparent and straightforward
to audit in case something goes wrong.
Decentralized Identity
Smart
contracts enable a new identity management framework based entirely on-chain.
This ensures that the user retains complete control over their personal data
and its use.
Transaction Batching
This
feature can save costs. For example, “batching” common actions like token
approvals and swaps into one transaction.
Multi-Signature
The
logic defined by the smart contract allows multi-signature authorization. It
requires the use of different keys, rather than just one, to authorize a
transaction, thus significantly enhancing security.
Programmable Recovery
Wallets
can offer several options to recover funds into the smart contract itself. For
example, if you lose your seed phrase, you could regain access to the wallet by
asking a previously set of trusted individuals (also called “guardians”) to
approve the recovery.
Compatibility
Thanks
to the modularity of smart contracts, wallet developers can create an ecosystem
of modules that users can opt to add to their wallets. This, in turn, creates
an app store for new features like NFT lending frameworks, DAO voting modules,
and non-custodial asset management services.
Disclaimer: The opinion expressed here is not investment advice – it is provided for informational purposes only. It does not necessarily reflect the opinion of TheCryptoArea. Every investment and all trading involves risk, so you should always perform your own research prior to making decisions. We do not recommend investing money you cannot afford to lose.
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