Ethereum had a huge upgrade in 2022, when the platform moved from the proof-of-work to the proof-of-stake consensus mechanism. Many Ethereum layer-2 solutions have been introduced to improve transaction speed and provide a better user experience.
Another major change is expected for ETH in 2025 with the growing adoption of the ERC-4337 Improvement Proposal, which was implemented in 2023. The new proposal focuses on account abstraction. It introduces smart contract wallets in addition to the existing externally owned accounts (EOAs). Our guide explains everything in detail, from how ERC-4337 works to its benefits and limitations. Whether you are a developer or investor, here’s the crucial info about this EIP.
What Is ERC-4337 and How It Works
ERC-4337 is an improvement proposal that aims to offer account abstraction. The goal is to change how Ethereum wallets function. Up to this point, crypto wallets have been externally owned accounts. That means they were on the blockchain, but users had the right to access the wallet by using specific private keys.
Account abstraction eliminates the need to change the core protocol. Instead, it enables wallets that work based on smart contracts. The key idea is to offer far more customization and tailor each wallet to user requirements. The best way to understand this change is if you imagine that EOA wallets use simple keys. Instead of them, smart contract wallets now implement a biometric and programmable access system.
Smart contract wallets don’t require any changes to the base layer. They introduce a new type of transaction structure — UserOperation. These UserOperations are collected and managed by off-chain actors known as bundlers. Bundlers aggregate these operations into a single transaction and submit it to the mainnet for execution via a special smart contract called the EntryPoint. This mechanism allows ERC-4337 to enable smart contract wallets and account abstraction without requiring changes to Ethereum’s consensus layer. While the standard is compatible with Ethereum and other EVM-compatible chains, each network must independently implement the necessary infrastructure, like bundlers, paymasters, and the EntryPoint contract, for ERC-4337 to function properly.
ERC-4337 was first proposed in 2021. Vitalik Buterin joined forces with several other creators, and this EIP became available on the mainnet two years later. Base, Optimism, and other layer-2 solutions already apply this upgrade, provided the necessary infrastructure, such as bundlers, is deployed.
3 Key Features of ERC-4337 Smart Wallets
For many users, this addition has been crucial when deciding to buy Ethereum and keep ETH coins in their wallets. In the following sections, we break down the top three features that make ERC-4337 stand out.
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Social Recovery Without Seed Phrases
Access to EOA crypto wallets has required keeping your private keys safe. These seed phrases were crucial to managing your funds. If you made a single mistake and lost them, the odds are your funds have been lost, too.
Smart contract wallets eliminate this requirement because they implement trusted guardians. These can be people like your family members or friends. If anything happens and you get locked out of your wallet, they can help. The concept comes down to confirming your identity via a trusted network. The benefits of this approach include smart security and being user-friendly.
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Sponsored Gas and Flexible Fee Payments
Ethereum isn’t famous for affordable fees, considering that charges are higher than on other networks. If you use a classic EOA wallet, it’s necessary to have coins to pay for the transaction. But if you choose a smart contract wallet, you can program the payment.
A sponsored gas fee is one paid by a third party. These could be employers, protocols, or even other decentralized apps. Another benefit is that you can program the wallet to pay gas fees in other cryptocurrencies.
The concept can be convenient in decentralized apps. Developers can offer a freemium concept, covering the first few transaction fees for users. Sponsored and flexible payments also make subscription and trial-based models applicable.
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Transaction Batching and Automation
Each transaction is independent if you use traditional EOA wallets. That means each action is separate, approving the use of tokens and then swapping the coins.
The idea of ERC-4337 is to combine multiple actions into a single transfer. It implies a single click is enough to approve the transaction and swap coins, or to join a DAO, vote, and get your reward. The advantages include automation, efficiency, and clarity.
Benefits and Limitations of ERC-4337
ERC-4337 is undoubtedly a major innovation that comes with many benefits. However, it does come with some limitations, and we’ll discuss both pros and cons below. Regardless of the wallet you choose to use, an ETH to USD calculator can be useful to know more about the Ethereum’s value per coin.
Enhanced UX and Security
A clear benefit of using ERC-4337 is improved security and usability. For starters, it doesn’t all come down to preserving the seed phrase. It’s not a disaster even if you lose the phrase, since there are mechanisms to recover it. In other words, there isn’t a single point of failure like in EOA wallets. That’s important to minimize the risk of losing funds.
Developer and Protocol Flexibility
Account abstraction is convenient since it enables wallet behavior customization without changing the foundational protocol. Designing plugins that improve UI and implementing additional security measures are easy to add to the wallet. All this contributes to a better experience for the user while improving functionality.
Technical Complexity and Adoption Barriers
As for the downsides of the ERC-4337 concept, the initial challenge is securing the infrastructure requirements. Paymasters, bundlers, UserOperation pools, and EntryPoint contracts are all a necessity for the upgrade to work.
ERC-4337 might not be compatible with all decentralized apps or block explorers. In some cases, compatibility could also be possible only to a certain point. There’s also the learning curve for developers who need to adjust to how everything works when designing wallets in line with ERC-4337.
How ERC-4337 Could Impact Ethereum’s Future
ERC-4337 is a modern, scalable, modular, and user-friendly system. As such, it can significantly affect the future of Ethereum and its upcoming trajectory.
Here are the main dimensions regarding how that could happen:
- Mass onboarding and adoption. ERC-4337 could lower the adoption barrier for users who aren’t tech-savvy. It eliminates private keys that repelled some investors who could have been tempted by how smart contract wallets work.
- Developer ecosystem and wallet design. dApp developers and wallet creators now get more flexibility when designing wallets. That ranges from changing permissions to using different security models and custom flows. It could pave the way for innovation in different dApp categories.
- Network structure and modularity. Ethereum works its way to a modular architecture with restaking and layer-2 solutions. ERC-4337 fits perfectly into that system.
ERC-4337 can be a significant improvement for the entire Ethereum blockchain. Smart contract wallets are just that – smarter than EOA wallets, but also safer and more user-friendly. That’s why they aren’t only a new standard, but rather a vital chapter in Ethereum’s history.
