The ever-changing blockchain technology and cryptocurrency field are complicated and an end-user really has no need to understand the deep insights of the technology. From an end-user perspective, the use case is most important. Yes, using cryptocurrency has become much easier than the earlier days and people have become comfortable to use cryptocurrency wallets. Still, the field is often a bit technical for a common person. If you want to hold cryptocurrency privately, you need to create a wallet. When you create a wallet, you get a public key and a private key. A seed phrase is also given in many cases. The age-old crypto proverb says, “Not your keys, not your coins”. For a conventional Web 2 user, who has mainly used centralized services throughout his life, it becomes cumbersome to handle all these pieces of stuff. Many users can’t handle the basic security measures and the funds are lost or stolen.
Cryptocurrency is radical money. The primary concept of cryptocurrency is to take control of the funds avoiding centralized intervention. You can trade with ease on a centralized exchange (CEX) but you have no fund control there. Using a non-custodial wallet is the only solution to have control over your fund and have privacy but the horrors of hacks and lost keys are really a barrier to mass adoption. At present 20% circulating supply of Bitcoin is stranded or lost in wallets and a wallet recovery service provider like Chainanalysis is bombarded with requests for recovery of keys. As per this report, 1,500 Bitcoins are lost every day and less than 14 M coins will remain in circulation finally. Quite strange! Many people might have owned Bitcoin since its earlier days without imagining that it would be such a fintech craze and lost the way to retrieve their funds. It is a fact that many sophisticated investors also find it difficult to manage their keys. People want to be their own bank but don’t want to manage the bank.
“But the reality is that the whole point of digital technology, blockchains included, is to make it easier for humans to engage in very complicated tasks without having to exert extreme mental effort or live in constant fear of making mistakes.” – Vitalik Buterin
A recent article by Vitalik on social recovery summarized his views on key management and he pushed for the adoption of social recovery wallets. It is understood that we need a better solution than ‘mnemonics’. Paper wallets, hardware wallets and multisig wallets have contributed towards wallet security but all have very low adoption rate and none of these solves protection against loss or theft. A social recovery wallet governed by smart contracts can provide far better solutions. A social recovery wallet has no single point of failure and it doesn’t demand the users to develop strange new habits. The two most prominent social recovery wallets are Argent wallet and Loopring wallet. Argent is an Ethereum layer1 wallet whereas Loopring is an Ethereum layer2 wallet. Argent currently doesn’t provide the keys to you. Instead of that, they provide you with the ‘guardians’. The guardians are the security of the system. Your friend or a relative can be your guardian. Your METAMASK wallet or LEDGER Nano device can be your guardian too. The primary guardian is your email and phone number. If you lose access to your wallet, you can recover it with the help of the guardians. To protect you against theft, daily transaction limits are imposed and to exceed the limit, approval of the guardians are required. Loopring wallet also follows a similar feature like Argent.
Argent’s guardian system as a social recovery – mobile app screenshot was taken by the author some months back
Such wallets are providing a very smooth user experience to the newbies. Two major problems may be smart contract interaction fees (currently a wallet like Argent is covering the fees) and the dependence on relayers to solve transactions. Both the wallets are running their own relayers now but that is not a sustainable practice. Vitalik has recently proposed to move the system to layer 2 like Optimistic or ZK-Rollup to solve the issue for Ethereum wallets. Let’s keep aside the technology part. Social recovery can really be used as a replacement for mnemonics and keys. If a Facebook or Instagram user becomes able to jump onto crypto safely without understanding the technical nitty-gritty, that will be called the best balance between security and simplicity. Cryptocurrency itself is about breaking norms. To shed off crypto anachronism, we need to embrace the new social security system. The counter-argument is that this system will take us back to ‘trusting people’ but what is the harm in giving the power to people for deciding whom they trust? The social recovery system can lead to faster onboarding and mass adoption. Let’s bring on the experiments!
Note: This post was first published here for Cryptowriter in association with voice.com.
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