Social Recovery Wallet Simply Explained

Social Recovery Wallets are a new type of Ethereum account with a recovery system for signing keys. Therefore, these wallets let us restore signing keys by selecting a number of “guardians,” who have the power to change the signing key.

The Problem For Social Recovery Wallets to Solve

There are several problems highlighting the need for a Social Recovery Wallet. To achieve maximum security, a new Ethereum user has to store his/her private keys offline in a safe environment. This comes with other trade-offs such as physical risk. For example, the signing key can be destroyed.

Other Ethereum users don’t store their private keys, but rather try to memorize them. Of course, this isn’t an optimal solution either; What happens if the user forgets the keyphrase?

Over the years, all kinds of wallet solutions have developed: paper, hardware, and multisig. But the main problem is that all of them are not beginner-friendly. In addition, the physical risk exists among all of them, making it hard for beginners to enter the crypto world.

Social Recovery Wallets Explained

Social Recovery Wallets promise to solve all of these problems. They promise to satisfy the following criteria:

  • No single point of failure
  • Easy to transact with
  • Not requiring users to physically store their private keys or memorize them

At first, you can use the Social Recovery Wallet like a regular wallet. But, the magic happens when your signing key is lost. Each wallet has at least three “guardians.” The owner of the signing key can easily add or remove them. If the signing key is lost, you can reach out to your guardians and ask them to change your signing key. It’s important that a guardian cannot change the signing key by themselves. The guardians have to collectively agree to recover the wallet.

To maximize security, these guardians should not know each other. They shouldn’t even be aware of each other’s existence. If they do, they can take over control of the person’s wallet signing key.

That’s why it’s important to choose the right guardians for your wallet. The guardians can be anyone from close friends, relatives, co-workers, or even old classmates.

What Are the Trade-Offs?

While the need to physically store private keys falls away, Social Recovery Wallets come with other trade-offs.

  • Choosing the right people: It may be difficult to choose the right guardians in your environment. You have to find a good balance in how close your guardians are to you. For example, you cannot only choose guardians inside your close circle of friends; if the guardians know each other, they might be able to take control over your wallet.
  • Trust: If all your guardians know each other, you need to trust them. That’s probably the biggest trade-off because it comes with similar risks associated with centralized exchanges. If you hold coins on central exchanges, you trust the institution not to steal your assets. Choose your guardians wisely!

Possible Solutions to the Trade-Offs

There are some possible solutions to choosing the right guardians. In fact, guardians do not have to be humans. They can be:

  • Other devices (or paper mnemonics), which are owned by the wallet holder
  • Institutions, which would sign a recovery message if they get a confirmation of your phone number or email

Conclusion

Social Recovery Wallets aim to solve one of the largest problems in DeFi: The risk of losing your private keys. If you own a Social Recovery Wallet and lose your singing key, guardians can collectively recover your wallet.

That’s how the risk of losing your keys falls away; However, it’s important to note that the risk of your private key being stolen still exists.

If someone gets access to your private key and the person transfers your funds, the guardians cannot help you anymore.

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