What is a Social Recovery Wallet?

What is a Social Recovery Wallet?

A social recovery wallet is a unique type of digital wallet that offers a solution for account recovery in situations where the seed phrase, typically used to restore access to a wallet, is lost. While similar to a regular digital wallet for securely storing crypto assets, a social recovery wallet goes a step further by providing a mechanism to regain access to funds even if the password or private key is forgotten.

This innovative wallet preserves all the functionalities of a standard blockchain-based wallet while maintaining a non-custodial nature, ensuring users have full control over their funds. As digital currencies and blockchain technology gain popularity, social recovery wallets offer an alternative approach to account recovery and enhance the overall user experience.

History of Social Recovery Wallet

The concept of social recovery wallets can be attributed to Vitalik Buterin, the co-founder of Ethereum, who proposed the idea in 2019. Recognizing the challenge of potential loss or theft of funds due to the loss of seed phrases, Buterin sought a solution to provide ordinary crypto investors with a safeguard. His vision was to create a mechanism where users could retrieve their signing key with the assistance of their social network.

By introducing the concept of social recovery wallets, Buterin aimed to enhance the security and peace of mind of crypto holders. This innovative solution allows users to mitigate the risk of losing access to their funds, even if they forget their password or lose their private key. The social recovery mechanism serves as a safety net, ensuring individuals can rely on their trusted social network to regain control over their assets.

How does the Social Recovery Wallet work?

A social recovery wallet operates through a smart contract deployed on the blockchain. It involves the use of guardians, which are trusted addresses added to the wallet to enhance security. If a user loses access to their public key, most guardians can collectively vote to change the key and restore access to the wallet.

Additionally, users can use their private key to manage and change the guardians associated with their wallet, although there may be a delay of 1-3 days to prevent fraudulent activity.

The guardian addresses in a social recovery wallet can be held by the user’s own different wallets or by trusted friends and family members. While the guardians don’t need to be held by different people, it is recommended to involve others to avoid the risk of losing all wallets due to a single point of failure. This approach alleviates the need for users to remember or securely store numerous seed phrases, increasing convenience and reducing the chances of permanent loss.

Source: Why we need wide adoption of social recovery wallets

The Social Recovery Wallet, as described by Vitalik Buterin, is a novel approach to securing a wallet that leverages the power of social connections. It operates on a few key principles:

• Single Signing Key: There is a single “signing key” that can be used to approve transactions.
• Guardians: There is a set of at least 3 (or a much higher number) of “guardians,” of which a majority can cooperate to change the signing key of the account.
• Guardian Management: The signing key can add or remove guardians, though only after a delay (often 1-3 days).

Under normal circumstances, users can use their social recovery wallet like a regular wallet, signing messages with their signing key. The social recovery functionality kicks in if a user loses their signing key. The user can ask their guardians to sign a special transaction to change the signing pubkey registered in the wallet contract to a new one.

Guardians can be other devices owned by the wallet holder, friends and family members, or institutions, which would sign a recovery message if they get a confirmation of your phone number or email, or in high-value cases verify you personally by video call.

To reduce the risk of attacks on guardians and collusion, your guardians do not have to be publicly known; they do not need to know each other’s identities. This can be accomplished in two ways. First, instead of the guardians’ addresses being stored directly on chain, a hash of the list of addresses can be stored on chain, and the wallet owner would only need to publish the full list at recovery time. Second, each guardian can be asked to deterministically generate a new single-purpose address that they would use just for that particular recovery; they would not need to send any transactions with that address unless a recovery is actually required.

In the event of theft, social recovery can be extended by adding a vault. Every social recovery wallet can come with an automatically generated vault. Assets can be moved to the vault just by sending them to the vault’s address, but they can be moved out of the vault only with a 1-week delay. During that delay, the signing key (or, by extension, the guardians) can cancel the transaction.

The two major wallets implementing social recovery are the Argent wallet and the Loopring wallet. Both wallets provide a smooth user experience but rely on a central “relayer” run by the wallet maker that re-publishes signed messages as transactions. This introduces a point of centralization, which can be mitigated by migrating the ecosystem onto layer 2 protocols such as optimistic and ZK rollups.

Social Recovery Wallet’s Pros and Cons:

Pros

• Enhanced Account Recovery: Social recovery wallets provide an additional layer of account recovery options. If users lose their private keys or forget their passwords, they can rely on their chosen guardians to help them regain access to their wallets, reducing the risk of permanent loss of funds.
• Distributed Responsibility: By involving multiple guardians, social recovery wallets distribute the responsibility of account recovery. This shared responsibility model reduces the burden on individual users and mitigates the risks associated with sole control over private keys.
• Increased Security: With social recovery wallets, the involvement of trusted guardians adds an extra layer of security. The consensus mechanism among guardians ensures that recovery decisions are made collectively, reducing the risk of unauthorized access to the wallet.
• Personalization and Flexibility: Users have the flexibility to choose their own guardians, which can be friends, family members, or even their own wallets. This allows customization and tailoring of the social recovery process to individual preferences and trusted relationships.
• Peace of Mind: Social recovery wallets provide users with peace of mind, knowing there is a backup plan if they encounter difficulties accessing their wallets. This can alleviate concerns about the potential loss of funds due to key mismanagement or accidents.

Cons

• Potential Governance Issues: In situations where a social recovery wallet relies on multiple guardians with conflicting opinions, decision-making processes and achieving consensus can become complex and time-consuming.
• Trust in Guardians: Users must place a significant level of trust in their chosen guardians, as they can change the key and potentially access the wallet. It is crucial to select trustworthy individuals or addresses to minimize the risk of unauthorized access.
• Dependence on Guardians: The effectiveness of a social recovery wallet relies on the guardians chosen by the user. If the guardians are not reliable or unavailable when needed, the account recovery process may be delayed or hindered.

The problem with Hardware Wallets and the comparison with the Social Recovery Wallet

While hardware wallets can provide a certain level of seed recovery phrase security, they have limitations. Even with the use of hardware wallets, there are potential vulnerabilities that users should be aware of.

One significant concern is the supply chain process. During the journey from manufacturing to the end user, a hardware wallet can be exposed to various channels where tampering or introducing counterfeit products can occur. This poses a risk of someone gaining unauthorized access to the wallet and potentially stealing funds.

Hardware failures are also a possibility. Despite being designed as secure devices, hardware wallets are still mechanical and subject to malfunctions. Technical issues or defects could result in losing access to funds, causing inconvenience and potential financial losses for the user.

Physical security is also a consideration with hardware wallets. They can be susceptible to theft or misplacement, putting the funds at risk if the device falls into the wrong hands or is lost.

In comparison, social recovery wallets offer an alternative solution that addresses some of the limitations of hardware wallets.

Examples of Social Recovery Wallets

Argent

Source: Argent Wallet

Argent Wallet is a cryptocurrency wallet with a primary focus on Ethereum. It not only supports the Ethereum ecosystem but also aims to enhance it. Argent leverages the smart contract capabilities of the Ethereum network to introduce innovative features. These include the ability to recover wallets without the need for a seed phrase and the option to block transfers to untrustworthy parties.

The Ethereum network has seen rapid growth and widespread adoption, making it a hub for innovation. However, this growth has not been without its challenges, especially for newcomers to the world of cryptocurrency. Issues such as high gas fees, the risk of losing private keys, and the need to constantly verify transaction details have posed significant hurdles for many new users.

Argent Wallet seeks to address these user experience issues. It functions much like a conventional financial application, eliminating the need for users to understand complex cryptocurrency jargon and technicalities. This makes it a user-friendly solution for both seasoned crypto enthusiasts and newcomers.

ZenGo

Source: ZenGo

Zengo Wallet is a self-custodial cryptocurrency wallet that prioritizes security and user-friendliness. It supports multiple chains, including Bitcoin, Ethereum, Polygon, and over 70 other crypto assets. Zengo Wallet is unique in that it uses Multi-Party Computation (MPC) instead of a traditional seed phrase, which eliminates the vulnerability associated with seed phrases and private keys. This makes the wallet virtually unhackable, providing users with peace of mind regarding the safety of their assets.

Zengo Wallet is a prime example of a social recovery wallet. It uses a three-factor authentication (3FA) system to ensure users can always recover their accounts. This system is based on the user’s email account, an encrypted biometric scan known as 3D FaceLock, and the Zengo recovery file. This approach to account recovery is more secure and user-friendly than traditional methods, which often rely on long and complex seed phrases that users must store safely.

It also offers a user-friendly interface and 24/7 customer support. Users can buy, sell, and trade crypto assets with a few simple taps, and they can also store, view, and use NFTs, DeFi, and thousands of Dapps. The wallet also includes a Web3 Firewall, which provides real-time risk assessments and alerts to protect users against Web3 attacks. This combination of security, ease of use, and customer support has earned Zengo Wallet high ratings from its users.

Loopring Wallet

Source: Loopring Wallet

Loopring Wallet is a decentralized trading platform that utilizes Ethereum’s first zkRollup Layer 2. This technology provides a secure, fast, and cost-effective environment for cryptocurrency transactions. The assets on Loopring’s Layer 2 are as secure as they are on the Ethereum mainnet, providing users with the utmost confidence in the safety of their assets. The fees on this wallet are significantly reduced, ranging from 1/30 to 1/100 of the fees on the Ethereum mainnet. This makes Loopring Wallet an attractive option for users who perform frequent transactions and want to minimize their costs.

Loopring Wallet also boasts high throughput, settling approximately 2000 transactions per second with near-instant finality. This makes it an ideal platform for developers looking to build scalable payment apps, non-custodial exchanges, and NFT marketplaces on Ethereum. Although the website does not explicitly mention social recovery wallets, the high level of security provided by Loopring Wallet, including its Layer 2 technology, aligns with the principles of social recovery wallets, prioritizing security and user-friendly recovery options.

Conclusion

A Social Recovery Wallet is a transformative approach to cryptocurrency wallet security that leverages the power of social connections and decentralization. By assigning trusted guardians who can help recover access to the wallet if the signing key is lost, it provides a robust and user-friendly solution to the problem of key loss.

The addition of a vault system offers an extra layer of protection against theft. While the current implementations have limitations, the advancement in account abstraction promises to overcome these and further enhance the security and usability of Social Recovery Wallets. This innovative approach represents a significant step in making cryptocurrency more accessible and secure for all users.