How Digital Wallets Are Becoming the Internet’s New Authentication Layer

Wallet-based logins are emerging as a secure and user-friendly alternative to traditional passwords and verification codes. Known for their use in cryptocurrency transactions, digital wallets are now evolving into a user-friendly login layer for the internet, cutting down the need for passwords and the complexities they entail, although two-factor authentication can still be beneficial.

Not only do passwords tend to centralize risk, but stored credentials often result in data breaches that put them at risk. Even if the user takes precautions, their password security is often dependent on third parties and their security practices.

Blockchain technology offers a strong alternative, eliminating the need for passwords while simplifying the process and making it more intuitive. Using crypto wallets allows you to hold and manage tokens and cryptocurrencies while also using the same wallet for identity and authentication. Using cryptography, users can sign messages with their private keys that never leave their devices, just as they can log in to decentralized exchanges and other dApps.

A wallet address when KYCd on a platform can be used to identify you, but simultaneously, its signatures allow passwordless login. Users simply approve requests and access instantly.

Account Abstraction

In addition to basic wallet connectivity, account abstraction also becomes possible. Account abstraction enables wallets to function like programmable smart accounts, unlocking features such as gas-free transactions via sponsorship by a paymaster under the EIP-4337 standard, rather than being limited as traditional wallets are.

Traditional wallets could be unforgiving. If you lose your keys or your seed phrase is compromised, your funds could be gone forever. Hardware wallets, such as the Ledger Nano, introduced a physical element with devices that stored the private keys offline, but this still brought the potential of users mistakenly sharing their seed phrases, breaking devices, losing them, or having devices stolen. These risks are changing with account abstraction, although some still remain.

Building on the concept of wallet logins, account abstraction introduces the ability to define rules, such as allowing multiple access and recovery methods. These modern wallets introduce innovative recovery options and permission controls for managing digital assets, in addition to support for:

• Biometric authentication (Face ID or fingerprint)
• Social recovery (trusted contacts help you regain access)
• Multiple devices or approvals
• Spending limits and permission controls
• Master accounts can sponsor gas-free interactions for their sub-accounts.

These developments in account abstraction lead to significant improvements in usability, making the experience feel seamless, akin to any modern app installed on a user's device. Logging in becomes as simple as unlocking your phone.

This change enhances security and fundamentally changes user autonomy, empowering individuals to manage their digital identities without third-party interference.

Privacy Through Zero-Knowledge Proofs

Building upon the enhancements provided by wallet logins and account abstraction, Zero-Knowledge Proofs, particularly zk-SNARKs, further improve security by enabling users to verify information without revealing unnecessary details. zk-SNARKs enable controlling and sharing information such as age, membership, or ownership without revealing unnecessary details or the full details of the information being shared.

With zk-SNARKs, it becomes possible to prove someone is over 18 without revealing their full date of birth, changing the relationship from data sharing to proof sharing. This cryptographic proof verifies the required details while preserving user privacy, a feature increasingly sought after.

Conclusion

As adoption increases and the technology that powers these wallets matures, they are likely to hold more credentials through tokenization and Non-Fungible-Tokens, such as IDs, tickets, and memberships, enabling users to prove who they are with cryptographic proofs rather than passwords, accounts, or document uploads.

About Chain

Chain is a blockchain infrastructure solution company that has been on a mission to enable a smarter and more connected economy since 2014. Chain offers builders in the Web3 industry services that help streamline the process of developing, and maintaining their blockchain infrastructures. Chain implements a SaaS model for its products that addresses the complexities of overall blockchain management. Chain offers a variety of products such as Ledger, Cloud, and NFTs as a service. Companies who choose to utilize Chain’s services will be able to free up resources for developers and cut costs so that clients can focus on their own products and customer experience. Learn more: https://chain.com.

Connect with Chain for the latest updates:

X (Previously Twitter): x.com/Chain

Facebook: facebook.com/Chain

Instagram: instagram.com/Chain

Telegram: t.me/Chain

TikTok: tiktok.com/@Chain

Youtube: youtube.com/Chain