Visa Experimenting With ERC-4337 Standard To Ease Credit Card Integration With Blockchain
Milestone Date: May 7, 2023
In a report released in May 2023, the credit card company Visa describes experiments that the company has conducted applying features defined in the ERC-4337 specification to general-purpose credit card transactions. The intended purpose of implementing the ERC-4337 specification is to reduce the complexity, cost and constraints that end users face when executing transactions on the blockchains that support the Ethereum Virtual Machine (EVM).
One of the key features of ERC-4337 is the introduction of Account Abstraction, which enables a technology named Smart Wallets. Typical cryptocurrency wallets such as MetaMask and Phantom issue special 12-word passphrases that ensure ongoing access to the variety of cryptocurrencies held by the wallets, even in the event that a wallet-specific password is lost. However, a Smart Wallet defines its own access credentialing infrastructure, thus eliminating a common, irrecoverable hazard that goes with losing a 12-word passphrase. With a typical wallet, if a user forgets or misplaces the wallet’s password as well as the passphrase(s) associated with any accounts to which the wallet is connected, access to those accounts can never be recovered and thus, users are at risk of losing access to some or all of the cryptocurrencies held by that wallet. The money is effectively gone.
Smart Wallets, on the other hand, can support any enterprise-grade credentialing mechanism — from fingerprint identification to two-factor authentication — to gain access to an ERC-4337-compliant Smart Wallet. Also, Smart Wallets support a feature called Social Recovery, in which third-party entities called guardians assist with credential recovery should users lose their access credentials.
In addition, ERC-4337-based Smart Wallets alleviate the currency conversion constraints and the cost of transaction fees that are typically found in prevailing cryptocurrency-based commercial interactions. By definition, a Smart Wallet is bound to a specific, solitary smart contract. (A smart contract is essentially an application that runs on a distributed ledger.) That smart contract can be programmed to do currency conversion behind the scenes, making it possible to pay for goods and services in fiat currency, even if users do not hold fiat in their wallet when doing the transaction.
Smart Wallets with ERC-4337 can use a feature called a Paymaster to pay for transactions on a user’s behalf. This makes it possible for Smart Wallets to configure their Paymaster to absorb all transaction fees incurred by the user, thereby turning the Smart Wallet into a “no transaction fee” purchasing instrument. One hope of a company that issues this type of Smart Wallet might be to incentivize the user to adopt its Smart Wallet over a competitor’s wallet for all purchasing behavior. Monetization will then be realized by other means over that long-term relationship with the customer.
Operationally, such a wallet issuer could bind its Smart Wallet to a credit or debit card.
Enter Visa (and probably other credit card companies).
Visa’s current efforts are in the test stage. The company used the Trampoline Wallet built by the Ethereum Foundation as the base code for its experiments, which were conducted on the Ethereum Goerli TestNet.
According to Visa, “Using digital wallets to interact with blockchains can be a challenging experience, and many believe that ensuring ease of use is a critical step to drive greater adoption. ERC-4337 lays down interesting future possibilities for improving on-chain user payments experience through a self-custodial smart contract wallet, which can in turn transform the way users engage with digital currencies and digital assets.”
By Bob Reselman
Published:May 7, 2023