What is ERC-4337?

Essentially, ERC-4337 allows the creation of smart accounts that combine the functions of EOAs (externally owned accounts) and smart contract accounts, providing users with one account that allows both – creating smart contracts and making token transactions. In other words, the standard allows you to create non-custodial wallets as programmable smart contracts.

Initially, it was proposed in 2021 by Vitalik Buterin and other Ethereum developers as the EIP-4337 standard. However, only in March 2023, during the WalletCon event, it was introduced as a functional ERC-4337 standard.

What's the difference between ERC and EIP? Well, EIP (Ethereum Improvement Proposal) is the proposal of a potential new contract or token standard that is yet to be approved or denied. EIP becomes ERC (Ethereum Request for Comment) once it is authorized as an acceptable change through the on-chain governance.

It's worth noting that this was not the first proposal for bringing account abstraction to Ethereum. There was also the EIP-2938 standard proposed in the past, which also had the possibility of achieving account abstraction. However, it did require consensus layer changes, which is one of the reasons why it was not approved.

What is Account Abstraction?

Overall, Ethereum has two types of accounts - EOAs and smart contract accounts. EOAs are wallets that users control and manage manually from outside the Ethereum blockchain, whereas smart contract accounts are smart contracts that act as cryptocurrency wallets.

However, smart contract accounts don't have private keys or seed phrases, which means you can only carry out a specific activity when an EOA transaction activates the smart contract code. Therefore, a user must have an EOA in order to manage a smart contract account.

Account abstraction is all about removing the need for separate accounts, combining EOAs and smart contract accounts into one "smart account."

How Does ERC-4337 Operate?

The ERC-4337-based smart accounts function through the use of UserOperations. As the name suggests, UserOperations represent operations that are waiting to be carried out on the user's behalf. Every UserOperation is routed to the mempool, which functions as a holding area.

Bundlers, who resemble nodes that validate standard transactions, group these UserOperations requests into bundles. Then, these bundles are included in a block, where each individual UserOperation is verified and put into action. The bundlers pay gas for the bundled transactions, but they are compensated with fees from each execution of a UserOperation.

Key Benefits of ERC-4337-based Smart Accounts

Firstly, smart accounts created with ERC-4337 have a completely different type of wallet recovery compared to traditional EOAs. You see, this standard doesn't rely on private keys or seed phrases. Instead of that, you can assign a device, a person, or some sort of third-party program as your "wallet guardian" (or guardians, as you can assign more than one). If you misplace your credentials, wallet guardians can be used to assign new credentials for accessing your smart account.

Moreover, the ERC-4337 standard allows you to batch several transactions and approve them at the same time. This can save both time and gas. In addition to that, you can automate transactions because you can establish a variety of characteristics, including access to particular tokens, gas limits, specific actions depending on pre-defined triggers, and much more.

Lastly, you can create shared accounts (team wallets) with different levels of access. So, for example, you can create a wallet that can be accessed by five people. However, you can determine certain limits for the other four users, allowing them to access only a certain amount of crypto.