What is a Social Recovery Wallet?

Technically speaking, social recovery is one of the functional modules in the account abstract. A social recovery wallet is generally a smart contract wallet, but a smart contract wallet does not necessarily include social recovery functionality.

A smart contract is a set of codes deployed on the blockchain, and different smart contracts can implement various functions. For example, UniPass and Argent support social recovery, while Gnosis Safe only supports multi-signature, and several other smart contract wallets also serve specific purposes.

Given the diversity of smart contract wallets, this article will only look at 'distributed hosted smart contract wallets' that offer social recovery features such as email for massive adoption purposes.

What does a Social Recovery wallet do?

As Solidity is a Turing-complete language, theoretically, many features can be implemented in a smart contract wallet. As mentioned, the social recovery wallet is based on a smart wallet. Different wallet providers have designed various features, so this article will only list some of the features of the leading smart wallet solutions.

• Account abstraction: based on account abstraction, it is possible to verify signatures, multiple ownership, change private keys, set private key weights, et al.

• Security policies: setting account permissions, whitelisting trading accounts, setting transfer limits et al.

• Wallet recovery: recovering control of the wallet through social or other means, setting "death inheritance", et al.

• Contract features: bulk transfers, fee payments in lieu, payment of fees using multiple tokens, et al.

In addition to these, smart contract wallets can perform several unique functions. For example, Instadapp's smart contract wallet allows quick DeFi operations, such as one-click collateral conversion based on AAVE. However, this article focuses on social recovery wallets designed for large-scale application purposes, so it will not be covered here.

What is account abstraction? Why do we need account abstraction?

Account abstraction is the core value of a smart contract wallet. "The term 'account abstraction' is inherently abstract and is simply understood as a way of splitting up the EVM account system so that it can be modularised to enable functionality that was previously unavailable". **Like I mentioned before, social recovery is also a feature of account abstraction.

The EVM system has two types of accounts: EOA (Externally Owned Accounts) and CA (smart contract accounts). The EOA is an externally owned account, which can also be understood as a public or private key wallet.

EOA wallets face many problems, such as the user does not own the account, only owns the private key, and the private key owns the account. When the private key is compromised or lost, the account no longer belongs to the user. In order to meet more demanding scenarios, developers try to use smart contracts as an account and to deploy more logic within the smart contract; this is called account abstraction.

Under account abstraction, the address is no longer a private key but a set of account logic that can be modularised to suit the needs of different users—for example, the aforementioned multiple signatures and social recovery.

How social recovery wallets solve privacy issues

Let's take Argent, a leading smart contract wallet, as an example. Argent's solution allows users to add other Argent users (e.g. friends and family) as their guardians, but this also requires them to reveal their addresses to each other. Exposing addresses also means exposing assets and user transactions, which opens up the possibility of social attacks and can cause new problems.

Smart contract wallets are a series of logic, so there are several ways to solve this problem. On the one hand, zero-knowledge proofs can be introduced into the contract to ensure verification is completed without exposing either party. On the other hand, social recovery wallets also incorporate more off-chain world factors to solve this problem, such as UniPass' email DKIM signature checking.

Inevitably, users must disclose information about themselves to the wallet's provider, such as their email address and mobile phone number when using Argent. But since we're talking about a mass adoption scenario, we'll assume that these are acceptable to the user.

The biggest problem with social recovery wallets

The challenge with Social Recovery Wallet is its reliability and compatibility. Reliability refers to how stable the service is and whether it can continue to run without fail. Compatibility, on the other hand, refers to whether or not the app chain, or app, is compatible with smart contract wallets. Here are the mainly issues:

• Whether the wallet service provider can guarantee that the relay is online and provides a stable service.

• The more complex the smart contract, the more difficult it is to audit and the higher the likelihood of risks.

• Smart contract wallets need to be deployed separately by the service provider on each sidechain and app chain

• Application developers need to optimise specifically for smart contract wallets.

Social recovery wallets still face significant challenges, the biggest of which are compatibility issues. In fact, in the early days, a large number of GameFi projects prohibited smart contract wallets from exchanging with them because they couldn't investigate the logic of smart contracts, and some exchanges didn't support smart contract coin depositing.

From my experience, when we were developing on Flow blockchain, we encountered a particular performance issue. The user has to wait a long time for confirmation after initiating a transaction because the relay nodes we deployed could not handle the sudden influx of users. This problem also occurred when users were using third-party wallets, and the experience was abysmal due to the lack of load on the wallet's relay nodes.

What recoverable contract wallet solutions are currently available?

An article by Youbi Capital published in November 2022 ("Bringing Web2 users to Web3 - the future belongs to the unaided word wallet") compares in detail several solutions for unaided word wallets currently on the market, including MPC wallets and wallets with social recovery.

This article summarises and compares MetaMask, web3auth, Magic, Sequence, Particle Network and UniPass, with UniPass and Sequence falling into the social recovery wallets we discussed earlier. The solution of UniPass scored highest in all six areas of functionality, Gas cost, uncustody, security, replacement devices and latency, and was also more balanced.

In addition to the ones mentioned by Youbi Capital, Argent, which received the nod from Vitalik, is one of the more mainstream social recovery wallet providers today. However, it has chosen to embrace zkSync and StartNet for multi-chain support and does not support EVM-compatible chains such as Optimsm and Arbitrum for now.

MPC vs Social Recovery Wallet

The Social Recovery Wallet and the MPC wallet are solutions that are often brought up when discussing large-scale applications, but they don't actually solve the problem on the same level.

The MPC wallet solves the problem at the level of the private key, it does not abstract the account itself and does not offer the rich functionality of the smart contract wallet. But equally, while the Social Recovery Wallet can offer a rich set of modules, it also creates certain compatibility issues.

I conclude by briefly comparing the advantages and disadvantages of the MPC Wallet and Social Recovery Wallet.

• Compatibility: MPC wallets are well compatible with multiple chains (whether EVM or not) without requiring any modifications by the application developer, whereas smart contract-based wallets have more challenges in terms of compatibility.

• Cost of use: social recovery wallets are more suitable for Layer 2, due to the additional gas cost of smart contracts, which is very expensive on the Ethereum mainnet.

• Functionality: Account abstraction allows for many features that MPC wallets cannot, such as pay gas in alts; however, I am more in favour of a protocol layer solution than an application layer solution, with the new generation of public chains such as Near and Flow coming with account abstraction, and EVM-compatible chains such as Fantom actively addressing the protocol layer.

• Recoverability: MPC wallets are irrecoverable once the intact private key has been compromised, but the likelihood of this is slim

• Availability: both sides rely on centralised nodes, but social recovery wallets also rely on relay nodes

• Security: social recovery wallets contain smart contract logic, which carries some risk. The risk is also exacerbated to some extent by the fact that smart contract wallets require application contracts for compatibility.

Personally, I think MPC wallets will outperform social recovery wallets in terms of application scale, especially in the high-frequency, low-value application scenarios that arise from gaming-based applications. At the same time, social recovery wallets have better applicability in high-value, low-frequency scenarios such as DeFi.

But I want to emphasise that my opinion is an intensely personal judgement, and I prefer that you focus on the objective facts explored in this article.

Lastly, I want to conclude that, whatever the case, it is worth getting excited about: massive adoption is close at hand.

Arthur: ccrunchen.eth

Publish: 2023/01/23

Last modified: 2022/01/23

However, this system is familiar with the CowSwap, aka coincidence of want. Therefore, in this article, I would like to introduce CowSwap briefly.

What is CowSwap

CowSwap offers a solution for decentralized trading which is the "coincidence of want" feature. The coW is defined as an "economic phenomenon where two parties each hold an item the other wants, and therefore exchange these items directly."

When a request for a swap is sent, the "solver" will try to match the order first, and when there is no coincidence, the trade will be sent to the on-chain AMM pool to aggregate the best rate just like 1inch.

The benefit of coincidence

The benefit of CowSwap comes from three aspects. Gas optimized, fees saving, and MEV protected.

• Gas optimized: CowSwap uses batch auction, which can compress serval trades in one transaction. In addition, as a user, one doesn't need to pay the gas fees after setting the approval of the token allowance.

• Fees saving & MEV protected: when there is a coincidence, the swap is happening between each party, which means it won't go through the AMM pools and save the LP fees. In fact, the match is happening off-chain, so there is no slippage and MEV attack.

CowSwap & $COW are currently available in both Ethereum and Gnosis Chain.

Problems

One of the main problems CowSwap faces is the "lack of coincidence". The coW system can only maximize its effort when the network is extensive enough. It aims to enable the P2P off-chain transaction, but it highly relies on professional arbitragers like 1inch.

Even though CowSwap doesn't look very competitive and charming in the current DeFi system. But I assume when gaming brings new users and the need for massive low-value but high-frequency trading, the system will show its ability.

Arthur: ccrunchen.eth

Publish: 2022/04/11

Last modified: 2023/01/18

The crypto and blockchain industry is still young and growing. So why don't we have a forecast for the future? Let me share some of my thoughts.

TL;DR

• Massive adoption will be the main story of 2023. The gaming industry will be prior to others while seamlessly integrating with blockchain technology.

• MPC solution will outrun other solutions (e.g. social recovery wallet). Infrastructure will be prepared for massive adoption (e.g. account abstraction will happen in the blockchain layer).

• The application will be the content focus (user-oriented), while the app chain is more welcome than a better Layer 1.

• Other than a higher fund utilisation rate, DeFi will provide seamless service along with the app chain.

In the upcoming section, I will justify myself by why and how.

MPC will become the mainstream solution

Vitalik is definitely a fan of the social recovery wallet, and he published an article in January 2021 to introduce the social recovery wallet (Why we need wide adoption of social recovery wallets). However, this solution faces two key challenges:

• Users need to expose some critical information to the relevant. For example, Argent users need to disclose their wallet address to their guardians, which means they have revealed the status of their assets.

• The social recovery method assumes massive adoption is finished. For most massive adoption scenarios, people will not seek support from their relevant, especially when this means disclosing some financial information.

Do you really want your friends and family to know your blockchain address? Plus, not everyone has a trustworthy friend who happens to know what's blockchain.

MPC (Multi-Party Computation), on the other hand, solved these problems. MPC is a technology that can be traced back to the 80s while field-tested in the institution market for the past few years. MPC providers such as Fireblocks have custody of billions of funds already.

I am not a tech guy, so I will quote the words from Fireblocks to explain what MPC is:

MPC enables multiple parties – each holding their own private data – to evaluate a computation without ever revealing any of the private data held by each party (or any otherwise related secret information).

In an MPC, a given number of participants each possess a piece of private data (d1, d2, …, dN). Together, the participants can compute the value of a public function on that private data: F(d1, d2, …, dN) while keeping their own piece of data secret.

What is MPC (Multi-Party Computation)?

**However, I firmly believe that the MPC wallet will become the mainstream solution for massive adoption. The application provider, such as a gaming studio, can pack the MPC service with their application. As the user, they can access the whole blockchain world while maintaining a Web 2 experience. **

App chain will be welcome than the new Layer 1

Top-tier investors earn a lot from new layer-1, like Solana, in the last bull market. So people assumed that Aptos and Sui would become the next Solana in financial return with their innovative programming language and the halo of Meta.

The innovation of Move-based blockchain and the new zk-based layer 2 is apparent. However, I will put more bets on the appchain.

An application-specific blockchain, or appchain, is a blockchain that is exclusively designed to operate one specific application instead of multiple apps like a public blockchain is designed to do.   What is an appchain?

There are lots of benefits for the developer to build on their appchain. For example, they can eliminate the gas fee for users. This will significantly increase the end-user experience while maintaining the critical advantage of using blockchain.

The content creator will soon realise they need an appchain for their game or products to gain more control. Currently, the developer can easily set up an appchain with Cosmos Zones, Polkadot Parachains, Avalanche subnets and Polygon Supernets. After all, I will be more bullish on optimistic or zero-knowledge-based and EVM-compatible appchain.

In 2022 we already saw the new layer-d1 developing by the alliance of gaming companies, such as Oasys, produced by Bandai Namco & SEGA, the traditional giant gaming company.

Oasys Architecture is built for game developers, offering a high-speed, zero gas fee experience to users by combining the best of public L1 and private L2 blockchain technology solutions.

Oasys - Blockchain for games

The problem for appchain right now is about something other than the technology of establishing one but how to interoperate with other chains, like how to seamlessly connect the liquidity and DeFi service to the appchain. And this leads to our last topic.

DeFi as a service

DeFi is the most critical innovation inherited by blockchain. It was the first time humankind could conduct financial behaviour globally without an intermediary. This enables a whole new business model for the gaming industry, whereas real-life economic behaviour twists with the virtual world.

Think about it. One can borrow virtual assets with real-life money as collaterals. During this process, they don't even know about their counters, which might be a communal pool. One can create value in the virtual world, serving anyone in any corner, and get paid with real money.

In fact, there is no so-called real money, only the consensus of humans. Bitcoins act like real money in El Salvador. With the development of the user-owned virtual world and DeFi as a service, we can create an economic society with "real money" for real.

People trade the gold coin and items in World of Warcraft for decades, and some are using the items to conduct primitive financial behaviour. But with blockchain technology, we can even do more. Assets trading, lending, and even derivatives are possible.

The DeFi in 2023 will become more and more invisible, whereas the protocol serves more like a product, not an app. AAVE V3 has come across different EVM chains, while DEXs provide seamless backend API. In the foreseeable future, all these DeFi services will be wrapped into the product. When that happens, the end-user might not even know they are using a DeFi, which we call "massive adoption", isn't it?

In my picture, the future blockchain worlds will be Layer 1 + Layer 2 appchain. DeFi service will be sharding as well.

Mainstream DeFi (like stablecoin yielding and mainstream token lending) are running in layer 1 to consolidate their safety and liquidity, then bridge to layer 2 as a seamless service. In-game assets DeFi, such as NFT leading and DEX, are running in layer 2.

In this circumstance, the appchain benefit from the liquidity and safety of layer 1 while they provide the application scene and users to layer 1. And the single failure of layer 2 (or a game) will not injure the stability of layer 1.

Massive adoption will comes

It takes time for the technology to be mutual. In the early centre, the dot-com bubble just crashed, but after that, we have thirty years of the Internet golden age. There is no doubt that blockchains have bubbles, but we must see through the night.

The bearish market will pass, and the golden age will come.

Arthur: ccrunchen.eth

Publish: 2023/01/05

Last modified: 2022/01/05