Unlocking digital ownership through social recovery is a critical but partial solution to the challenges of self-custody.
Given that Web3 is built on the core principles of decentralization and the elimination of third-party intermediaries, why do most cryptocurrency users today choose centralized exchanges? Unfortunately, fully owning digital assets is still too difficult.
Social recovery solves this problem by providing self-custody with the help of friends; users appoint "guardians" who can help regain access to their accounts in the event of a lost key. Since the need to manage complex mnemonics and private keys is one of the biggest barriers to self-custody adoption, the concept of social recovery is indeed attractive.
The introduction of the Ethereum standard ERC-4337, among many other features, has enabled social recovery, increased awareness of the system and seen it as a panacea for the most pressing user experience issues associated with self-custody.
While social recovery is a revolutionary development for decentralized autonomous organizations (DAOs) and other organizations, it does not fully solve the key recovery problem without creating other issues around trust and centralization. Rather, social recovery is a stepping stone to achieving greater user security in the smart contract space, and alternative approaches are needed to meet the needs of users.
As the FTX trial continues to expose the safety of customer funds, it is time for the industry to take stock, consider the risks of centralization, and develop a plan to provide users with true digital ownership.
History of Social Resurgence
For the record, social recovery is nothing new. It has been practiced for years. ERC-4337 is just one potential mechanism that can be used to facilitate this functionality. Furthermore, social recovery is one of the many benefits of multi-signature wallets (multisigs), which are built using smart contract accounts through account abstraction.
Why is multi-signature so important? Previously, self-custodial accounts were limited to a complex seed phrase to gain access and facilitate transactions. With the transition to smart contract accounts, multi-signature has evolved, which allows for multiple keys, and therefore multiple users, to be connected to a single smart contract wallet. Now, DAOs and other organizations can leverage the power of digital ownership to coordinate as a group without a centralized actor.
With the innovation of multi-signature, social recovery has also been developed so that if one user loses access to their wallet, other users on the account can help them recover their keys. In addition to DAOs, this feature is also useful for individual users who want to better protect their funds. Stories of lost wealth are common in the industry, and it is estimated that at least 20% of Bitcoin is permanently lost due to forgotten keys. As trust in centralized actors decreases, social recovery becomes a promising solution.
There is no one-size-fits-all solution
You might give a trusted neighbor, friend, or family member a key in case you get locked out, so why not do the same for your wallet? For many crypto users, social recovery is preferred over storing digital assets on centralized exchanges. The FTX crash and other exploits highlight the risks of storing digital assets on centralized exchanges.
But the reality is that not everyone knows their neighbors, nor can everyone trust them. Additionally, as digital ownership grows, new adopters may not have cryptocurrency-savvy friends or family who can serve as account guardians.
Beware of Centralization
The downside of social recovery raises concerns that centralized actors acting as guardians of smart contract accounts create dependencies that could harm the community in the long run.
This is part of a broader conversation about smart contract accounts, such as ensuring that users can move their wallets freely around the network, just like using an externally owned account (EOA) wallet. The goal is to give users the experience of Web2 and the freedom of Web3, although this involves a certain degree of compromise.
As social recovery develops, it will likely involve a degree of decentralization — called “hybrid custody” — where users can choose how much they want to compromise on overall security in exchange for greater flexibility and easier access to their assets. The difference between Web3 platforms that offer hybrid custody and traditional institutions remains significant. Now, for the first time, users can choose their own customizable asset management plan without being limited by the services offered by centralized custodians.
Where do we go from here? The future of Web3
Social Recovery is a major breakthrough for the industry, bringing tremendous value and enabling the expansion of Web3’s user base. By removing the technical barriers to self-custody, the tool makes digital ownership more accessible, ultimately delivering on the promise of financial freedom.
Although social recovery has its drawbacks, no solution is perfect. Therefore, it should be part of the various security measures available to users when using Web3 platforms. Smart contracts also support many other features that make key management easier, such as more convenient login methods, two-factor authentication, time locks, etc.
The task now is to continue developing key management solutions. By using a modular, open source development stack that puts account abstraction tools in the hands of more builders, we have seen a surge in new projects based on smart contracts. As long as the community continues to work together to achieve digital ownership, better solutions are around the corner.
safe
Safe is the leading self-custody platform and infrastructure provider, currently safeguarding nearly $50 billion in assets. By leveraging account abstraction, Safe's mission is to unlock digital ownership by bringing Web2-level user experience to Web3.
Safe{Wallet} has become the default wallet choice for Web3 native projects like AAVE and 1inch, as well as enterprises like Shopify, providing security and usability without compromising self-custody. Many of the largest individual asset holders, such as Punk6529 and Vitalkin Buterin, also choose Safe{Wallet} to protect their personal assets. With the launch of Safe{Core}, developers have access to a modular open source stack that supports account abstraction, providing a foundation for building user-friendly and secure Web3 platforms. #以太坊 #WEB3