The Shift Towards Smart Contract Wallets for All Crypto Users


Lately, wallets pose a major obstacle to introducing regular users to cryptocurrency.

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As a result, without compromising the decentralized and self-custodial aspects of cryptocurrency, the sector must prioritize and accelerate the shift towards solutions that are far more user-friendly and secure.

The smooth and frictionless experiences that have become the standard in the Web 2.0 space stand in stark contrast to traditional self-custodial wallets, which frequently undervalue the significance of the user experience and place the entire burden of security on users.


Even early adopters of cryptocurrencies have favored custodial solutions and centralized exchanges as a result of this disparity.

However, the introduction of wallets based on smart contracts is about to bring about a paradigm change.

These cutting-edge wallets have the potential to transform self-custody and pave the way for the general public to adopt cryptocurrencies.

Identifying Key Weaknesses in Existing Cryptocurrency Wallets

Security and having confidence that your money won’t be lost are the main concerns.

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According to a recent Chainalysis report, over the last few years, hundreds of millions of dollars have been stolen from cryptocurrency wallets.

Hundreds of millions of dollars have been stolen from cryptocurrency wallets over the last few years, according to a recent Chainalysis report.


The primary vulnerability of existing cryptocurrency wallets is their dependence on a seed phrase, which is a string of 12–24 characters that serves as the only safeguard for a user’s wallet.

Fundamentally, a seed phrase secures even hardware wallets. The user’s money is at risk if they misplace the seed phrase or if an attacker finds it.

But why does the seed phrase cause such trouble? Let’s look at the three primary user authentication security factors to better understand this.

  • Something you know – a password
  • Something you have – a physical device
  • Something you are – biometric identity such as a fingerprint or face scan

Even the most fundamental Web 2.0 services use two or more of these factors, but the majority of self-custodial cryptocurrency wallets today only use the first one—”something you know”—which is regarded as the weakest of the three (text passwords being especially vulnerable).

Because of this reliance, seed phrases present a serious security risk and are susceptible to malware and phishing scams.

But security isn’t the only problem. There are also a lot of difficulties with the user experience (UX) in general.

Regardless of the type of transaction, the tokens involved, or the actual tokens that are in the wallet, one prominent example is the requirement to pay for transactions using a specific token (the gas token).

The Emergence of Smart Contract Wallets

Smart contract wallets have two parts: a smart contract account that runs on the blockchain itself and handles all of the wallet account’s transactions; this smart contract account is separate from the application layer, which functions similarly to existing wallets and signs transactions before sending them to the blockchain.

This structure is incredibly strong because it allows every wallet account to have arbitrary execution logic for every transaction in addition to custom signature verification logic.

This extra reasoning is what gives the wallet its “smart” label.

It’s similar to having a decentralized server with state preservation capabilities.

The wallet is considered “smart” because of this extra logic.

It functions similarly to a decentralized server that can store state.

Wallet providers now have a whole new set of opportunities to improve UX and security to a great extent thanks to this innovation.

Wallets with smart contracts offer a number of innovative features that solve the drawbacks of conventional wallets.

Enhanced security

These wallets can make use of the sophisticated security chips present in contemporary laptops and mobile devices by turning on custom signature verification logic. This allows for a 2FA (two-factor authentication) mechanism that provides strong fund protection.

The security chip of the device generates keys that are intrinsically linked to it (i.e., “something you have”), and biometric authentication is the only way to authorize transactions (i.e., “something you are”).

The account’s smart contract then verifies these transactions on-chain, making sure that even in the event that the seed phrase is compromised, the account is safe from malware or phishing attempts.

Crucially, neither decentralization nor self-custody must be sacrificed.

No third party may censor or sign on behalf of the user; they are the only ones with authority over the wallet.

Daily spending limits

Not all account balances can be withdrawn with an ATM card in traditional banking systems.

This is a safeguard to make sure that your bank account cannot be completely depleted in the event that your card is stolen.

On the other hand, there are usually no restrictions in the world of cryptocurrencies, and one transaction—whether legitimate or fraudulent—can empty an entire account.

With the help of smart contract wallets, users can impose daily spending caps and require extra authentication—for example, two separate device signatures—for transactions that exceed predetermined spending thresholds.

This feature adds an extra degree of security for higher-value transactions while enabling a smooth user experience for transactions involving smaller amounts.

Deadman switch

Smart contract wallets can incorporate mechanisms that enable the transfer of assets to predetermined beneficiaries in the event that the wallet is inactive for an extended period of time, thereby addressing a concern that is rarely discussed.

In the event of the owner’s passing, this guarantees that the assets are preserved.

Compared to most current self-custody wallets, which require owners to share their seed phrase or keys while they are still living in order to keep their assets from being lost after they pass away, this feature is noticeably different.

Paymaster functionality

The difficult task of managing gas fees is well known to anyone who has worked with blockchains; it involves making sure you have an adequate supply of the particular gas token needed to cover transaction fees, even when the transaction involves multiple tokens.

This problem can be solved by smart contract wallets, which let users pay for transactions with the token of their choice.

The process is made simpler by the account’s smart contract, which smoothly exchanges the selected token for the necessary gas token.

Additionally, by allowing DApp developers to bundle or subsidize the gas fee, they can offer “gasless” transactions and improve user experience even more.

Anticipating: a new phase for cryptocurrency wallets

Smart contract wallets introduce features that meet users’ expectations for security and convenience, similar to what they have grown accustomed to in the Web 2.0 space, while addressing the serious flaws inherent in current wallet designs.

This sets up the possibility that smart contract wallets will take over as the norm, opening the door for non-custodial cryptocurrency solutions to be widely used.

This shift not only represents a major step toward guiding the general public towards a more decentralized future, but it also promises to greatly improve the security and usability of cryptocurrency wallets.CRYPTOCASTER® - DECENTRALIZED FREEDOM!


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