[TL;DR]
- Ethereum’s EIP-7702 is an innovative upgrade that allows EOA wallets to incorporate smart account functionalities. It is expected to be implemented in the 2025 Pectra upgrade.
- By registering a delegation designator in an EOA wallet, users can leverage key smart account features such as multi-signature approvals, transaction limits, automated transactions, and account recovery—applicable across multiple chains.
- As corporate cryptocurrency transactions become legally permitted, EIP-7702 opens new possibilities for enterprises and institutions to utilize blockchain in a safer and more efficient manner while maintaining their existing addresses.
1. Introduction: The Present and Future of Ethereum Wallets
Since the launch of Ethereum in 2015, the blockchain ecosystem has rapidly evolved. DeFi and NFT markets have surged, blockchain gaming has established itself as a new sector, and numerous Layer 2 solutions and cross-chain technologies have advanced.
Ironically, however, wallets—the most fundamental touchpoint of Ethereum—have remained stagnant. Even after eight years, most users still rely on basic EOA (Externally Owned Account) wallets.
The biggest issue with traditional EOA wallets is their complete dependence on a single private key. This is akin to having just one key to unlock all the doors in a house, making it an inherently risky structure. This simplistic setup inevitably leads to multiple problems.
The most severe issue is security risks. If a private key is leaked, all assets within the account are at risk. A hacker with access to the private key can drain all funds with a single signature, and there is no way to prevent this. Unlike traditional financial services, which offer basic security features like transaction limits and delayed execution for suspicious transactions, EOAs lack such protections.
Another issue is irrecoverability in case of lost private keys. In conventional financial services, users can regain access to their accounts through identity verification. However, with EOAs, if a private key is lost, all assets in the account become permanently inaccessible, regardless of their value.
Lastly, EOAs cannot leverage essential financial functionalities. Features like multi-signature approvals, spending limits, automated payments, and conditional transactions—all of which are possible with smart contracts—are unavailable in EOAs. This renders EOAs practically useless for managing corporate funds or running DAOs that require complex operations.
2. Understanding Smart Accounts
2.1 What Are Smart Accounts?
Smart accounts redefine the concept of wallets. While traditional EOAs are merely key-address pairs, smart accounts utilize smart contracts to execute various functions, transforming a wallet from a simple storage unit into a "smart" financial tool customizable to user needs.
The key advantage of smart accounts is their modularity. Like assembling LEGO blocks, users can freely add or remove features as needed. For instance, if multi-signature approval is required, a module can be added. If automated transactions are needed, the corresponding module can be installed.
2.2 Innovations Brought by Smart Accounts
Smart accounts fundamentally differ from EOAs in several ways, most notably in security models. While EOAs rely solely on a private key, smart accounts allow for multiple security layers. For example, small transactions may require only a single signature, whereas large transactions might necessitate multi-signature approval.
Transaction flexibility is also significantly enhanced. Smart accounts enable scheduled transactions, conditional transactions, and even sponsored transactions, where third parties cover gas fees—greatly lowering entry barriers for new users.
2.3 Real-World Use Cases
For individual users, smart accounts enable features such as shared family wallets, designated inheritors for emergencies, and account recovery mechanisms. Integration with new authentication methods like biometric verification and hardware security keys also becomes possible.
For enterprises and institutions, the use cases are even broader. A corporate finance team could create a hierarchical wallet structure with distinct permissions. For example, daily operational expenses might require only mid-level manager approvals, while large fund transfers could mandate CFO and board approvals. Additionally, transaction records could be automatically linked to accounting systems, simplifying audits.
For global corporations, cross-border payments become much more streamlined. Subsidiary wallets could operate within predetermined limits set by the headquarters, with large transfers requiring explicit authorization. The ability to use cryptocurrencies for foreign exchange and remittance could also significantly reduce costs.
Institutional investors can benefit from advanced digital asset portfolio management. Asset managers can oversee multiple funds through independent sub-wallets while managing an overarching portfolio. Smart transaction limits and automated rebalancing mechanisms can further optimize risk management.
3. EIP-7702: A Revolutionary Change in Wallets
3.1 Overview and Key Features of EIP-7702
Ethereum’s upcoming upgrade, EIP-7702, is set to fundamentally change the landscape of existing wallets with the 2025 Pectra upgrade. Once implemented, EOAs will be able to directly execute smart contract code, meaning users can enjoy the benefits of smart accounts without changing their existing wallets.
The key feature of EIP-7702 is the "Delegation Designator." By assigning a specific smart contract address to an EOA, the wallet can seamlessly utilize that contract’s functionalities. This can be done across multiple chains, allowing either chain-specific customizations or a uniform configuration across all chains.
3.2 How It Works
EIP-7702 operates similarly to installing new features in a familiar application.
First, users select the desired functionalities. For example, they might set up rules such as “Any transfer above $1,000 requires two approvals” or “Daily transaction limits should not exceed $10,000”. These functionalities are linked to the wallet via a designated smart contract—this is the essence of the Delegation Designator system.
Once registered, the wallet automatically integrates these features as if they were natively built into it. No new wallet needs to be created, and no assets need to be transferred.
Moreover, users can modify or remove functionalities at any time, just like uninstalling an app on a smartphone. They can also configure different settings per blockchain or apply a uniform setup across all networks.
3.3 Limitations of EIP-7702
While EIP-7702 brings significant improvements, it is not a perfect solution.
The biggest concern remains the reliance on a single private key. Regardless of additional security measures, if a private key is compromised, all safeguards become ineffective. This is akin to having an advanced security system in a house but still possessing a master key that overrides everything.
Additionally, multi-signature functionalities may not be fully reliable, as the wallet owner can still bypass them using the private key.
The issue of account recovery also persists. Unlike conventional financial services, EOAs cannot implement a foolproof recovery system. Losing a private key ultimately necessitates creating a new one, which is not an ideal solution.
4. Future Outlook and Challenges
4.1 Toward Full Account Abstraction
EIP-7702 is a crucial step toward full account abstraction in Ethereum. However, EOAs still retain absolute authority over private keys, meaning they have yet to become true smart accounts.
Ethereum developers are already working toward completely eliminating private key dependency and transitioning all accounts into smart accounts. EIP-7702 serves as a transitional bridge to help users gradually adapt to smart account benefits.
4.2 Changes in the Wallet Ecosystem
The EIP-7702 upgrade will drive major shifts in the wallet industry. Traditional wallets will evolve from simple key managers into comprehensive asset management platforms that provide smart account functionalities.
Additionally, Wallet-as-a-Service (WaaS) and embedded wallets will experience accelerated growth. Enterprises will be able to seamlessly integrate wallets into their services, allowing users to access Web3 applications without needing to install separate wallets.
Corporate blockchain adoption will also accelerate. Until now, one of the major barriers to corporate blockchain integration was the difficulty of fund management. With structured authorization and automated operations, businesses will find it much easier to implement blockchain technology into their workflows.
5. Conclusion
With corporate cryptocurrency transactions gradually being permitted in South Korea, businesses will need robust digital asset management systems that comply with internal control standards and AML regulations.
EIP-7702 provides a practical solution for enterprises by enabling features like multi-signature approvals, transaction limits, and automated audits. When combined with WaaS solutions and embedded wallets, businesses will be able to seamlessly integrate blockchain into their existing systems.
While EIP-7702 is not a complete solution, it marks a critical step toward bridging blockchain technology with institutional needs, making blockchain more accessible and functional in real-world enterprise environments.
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