The Evolution of Web3: A Path Towards Multichain Self-Custody
As the world of cryptocurrency continues to grow and evolve, debates about the best approach to managing assets have intensified. In a recent exchange on X, Ethereum founder Vitalik Buterin took issue with MicroStrategy executive chairman Michael Saylor’s views on self-custody. While Saylor argues that moving Bitcoin into regulated institutions provides security and legitimacy, Buterin counters that this undermines crypto’s mission. However, there may be more to the story than a simple binary choice between Saylor and Buterin’s perspectives.
The Trouble with Self-Custody
Self-custody, or holding one’s own keys, offers absolute control over assets but can be overwhelming for many users, especially newcomers to Web3. Saylor is right that managing private keys and seed phrases can be a significant challenge. However, advancements in non-custodial wallets have made it easier for users to create wallets using social accounts, such as Farcaster or Passkeys, removing the complexity of managing private keys.
Despite these improvements, self-custody still has its limitations. Users must navigate multiple custodial and non-custodial wallets to transact on different chains. This siloed approach creates fragmentation issues across Web3, leading to a poor user experience.
The Fragmentation Problem
In the first half of 2024 alone, over 70 new layer 1s were created, surpassing 50 in 2023. With countless decentralized applications built on different chains, users struggle to navigate and manage their assets. On average, a user has between three and 10 wallets, depending on their experience with crypto.
This complexity heightens the risk of human error, such as sending funds to the wrong address or forgetting private keys. Around 20% of all Bitcoin lost was estimated to be due to user errors. The problem is that fragmentation means a poor user experience, affecting liquidity and interoperability.
Addressing Fragmentation
Wallet abstraction and chain abstraction are steps towards realizing a more usable and cohesive Web3 ecosystem. Advancements like ERC-4337 and EIP-7702 enable Externally Owned Accounts (EOAs) to function as intelligent accounts, delegating wallet control.
Traditionally, users would need to manually transfer funds between wallets. With EIP-7702, Wallet A and B can delegate control to Wallet C, enabling Wallet C to use their funds without additional transactions. This addresses the wallet fragmentation problem, empowering users to manage different accounts with a single, unified account.
Chain Abstraction
Chain abstraction is the next important step towards realizing true interoperability in Web3. Users should be able to seamlessly interact with any chain, regardless of where their assets are held. Even with intelligent accounts, users cannot directly use funds from Chain X to conduct transactions on Chain Y.
This results in a poor user experience, requiring users to first bridge or transfer assets between chains. Chain abstraction will function similarly to Apple Pay, where users can easily select their credit card of choice for payments.
A Unified Interface
Users will interact with the blockchain through a unified interface that allows them to view all their assets and balances across different chains and spend crypto as if it were a single unified account. This streamlined approach to crypto will make self-custody more accessible and user-friendly.
The Future of Self-Custody
Saylor’s comments suggest that institutions holding Bitcoin as an asset and degens can have a single unified account that remains self-custody. The user interface and UX design for that private key can be designed to suit every type of crypto asset holder.
Multichain self-custody will, in time, make everyone willing and able to use self-custodial mechanisms. If we continue with self-custody, we must get it right. The fragmentation in Web3 ecosystems is a reality that we cannot reverse. It’s an evolutionary tale.
As the industry grows, it is no longer about how we onboard users onto a particular platform or chain but how to make the Web3 ecosystem more user-friendly, functional, and interoperable by unifying crypto and trusting in self-custodial systems.
Conclusion
The debate between Saylor and Buterin may seem like a simple binary choice, but it highlights the complexities of managing assets in the world of cryptocurrency. As we move towards multichain self-custody, it’s essential that we prioritize user experience and interoperability.
With advancements like wallet abstraction and chain abstraction, we can create a more seamless and accessible way for users to manage their assets. The future of self-custody is not about forcing users onto a particular platform or chain but about creating a unified, user-friendly interface that makes crypto more approachable for everyone.
About the Author
Zhen Yu Yong is the CEO of Web3Auth. Web3Auth has built wallets for Binance.US, Trustpilot, and numerous Fortune 500 companies. Previously, Zhen worked at the Eth Foundation and Visa.
