A crypto smart wallet explained in simpler terms is a self-custodial wallet that lets users customise and automate how they would like to manage their digital assets using smart contracts. This is achieved by applying account abstraction concepts in smart contract code to remove complex essential steps in the externally owned accounts (EOAs aka traditional crypto wallets) from the user end resulting in a smooth and easy-to-understand user experience.
Smart wallets come with several advantages such as
- Social logins and two-factor authentication — help retain better control over the wallet. Even if a key to the wallet is lost, access to the wallet can be restored, meaning a user would no longer lose access to his digital assets once he loses his private key.
- Improved Transaction Handling Process — setting transaction limit for a particular app, bundling together the same type of transactions with the exact amount of tokens involved into a single transaction to save gas fees, batching together transactions with multiple signature requirements into one so that the transaction that can be signed with a single click.
- Gasless Transactions — Use the same token in which the transaction is being made to pay transaction fees instead of using source chain tokens to pay gas fees.
- Trusted Guardians — Decide which wallet addresses transactions can be made to and add guardians to approve various activities such as approving transactions with amounts exceeding certain limits, access reset etc.
How and Where can we use smart wallets?
Simplify DeFi — By merging contracts with EOAs and abstracting away the complex transaction process, users can now experience a Web2-like transaction environment in Web3. Explaining it in an even simpler way using an example — Be it token swap or NFT purchase or lend and borrow transactions, users can make transactions similar to shopping for goods online via e-commerce sites like Amazon and E-bay. The UI is very simple and easy to understand, and the products will be displayed in a central marketplace sort of environment where transactions can be made using one or two simple steps.
Better Identity Management — Smart wallets provide a better way to manage your decentralized identity while paving the way for further simplification of the transaction process. A better identity handling process allows for better security and also improved transaction processing capabilities when it comes to peer-to-peer transactions. This also helps to easily identify and blacklist wallets that are involved in suspicious transactions.
Peer-to-Peer Transactions & Payments — Eliminate the need for middlemen and enable simple and fast peer-to-peer transactions using smart contract wallets. Transactions can be programmed to be easily verified and automated upon meeting pre-defined requirements. When it comes to payment services, we can ensure payments are credited and deposited, ensure that adequate balance is maintained in the wallet at all times and notify the wallet owner in case of any discrepancies or when transactions involving significant amounts of money are handled.
Gasless Transactions & Better Transaction Fees — Users can now pay for all transactions in the same token in which the transaction is made negating the need to pay transaction fees in the form of source tokens (gas fees). Furthermore, the improved transaction handling capabilities facilitated by smart wallets such as Transaction batching and bundling would mean that multiple transactions can now be combined together and processed as a single transaction greatly reducing the amount paid as transaction fees. DeFi dApps can also incentivize and attract new users via sponsored transactions in which they pay the transaction fees for transactions performed by users in their platform.
Improved Multi-Chain Cross-Chain Experience — By connecting our Web3 middleware to our smart contract wallet inside one platform, we are able to further improve the cross-chain experience by simplifying the transaction process. What would otherwise be a time-consuming process with multiple transaction signing processes across multiple wallets is now reduced to just one of two transaction signing processes, and assets of different chains are stored in the same wallet allowing transactions to be completed almost instantaneously. Given that different chain tokens can be stored in the same wallet inside the same UI now, moving assets between different chains which has always been a problem to date can be handled effortlessly now.
Better Data Management — Since all transactions can be performed based on pre-defined conditions by smart contracts, it allows for better security and easy management of transaction data. This combined with already existing immutability concepts in the blockchain ecosystem allows for better data handling and management with less chance for any fraudulent data or vulnerabilities stemming from phishing attacks and other hacking activities.
More than Just DeFi — With smart wallets addressing various challenges faced by blockchain and decentralised ecosystems, blockchains can now easily proliferate across other industries and not just remain monopolised by the finance sector. Some of the other industries that could benefit from smart wallets include — e-commerce websites, logistics companies, retail stores — food/clothing, medical sector (both hospitals and pharma companies).
By simplifying the transaction process and improving UI to a personalised level that even new users can easily adopt without having to learn about core concepts behind crypto and Web3, it leads to increased engagement allowing Kana Labs to onboard the next million users from Web2 to Web3 space. DeFi had been focused towards banking and investing activities so far but the scope of user activity remained limited. With the smart wallet, we now open doors to other spaces such as automated bill payments and merchant POS. By simplifying and personalising UI and UX, we also attract more users to core financial practices such as Lend/Borrow services, savings and earnings via staking and yield generation which new users normally avoided due to requirements to learn more about the core working of DeFi space.
Here at Kana Labs, we are pioneering smart wallet services by connecting both EVM and Non-EVM chains under a single platform. For details on our smart wallet offerings, please visit here.
