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Opinion: Social recovery is a necessary first step, not a magic solution, to the problem of digital ownership

Op-ed: Social recovery is a stepping stone, not a silver bullet to the digital ownership dilemma Op-ed: Social recovery is a stepping stone, not a silver bullet to the digital ownership dilemma 4 days ago · 4 min read

Newconomics Lisbon 2023

Unlocking digital ownership through social recovery - a crucial yet partial solution to self-custody challenges.


4 min read

Updated: October 22, 2023 at 3:49 pm

Op-ed: Social recovery is a stepping stone, not a silver bullet to the digital ownership dilemma

Cover art/illustration via CryptoSlate

Stop scaring users with your bad KYC flows

Given that Web3 is built on the core tenet of decentralization and the removal of third-party intermediaries, why is it that most crypto users today are wed to centralized exchanges? Unfortunately, taking full ownership of your digital assets is still too difficult.

Social recovery tackles this problem by offering self-custody with a little help from your friends; users designate “guardians” who can help regain access to an account in the case of a lost key. With the need to manage complex seed phrases and private keys one of the biggest barriers to self-custody adoption, the concept of social recovery is appealing indeed.

The launch of Ethereum standard ERC-4337, which, among many features, enables social recovery, raised awareness of this system and saw many frame it as a silver bullet to the most pressing user experience issues associated with self-custody.

While social recovery has been a revolutionary development for decentralized autonomous organizations (DAOs) and other organizations, it does not completely resolve the issue of key recovery without creating other problems around trust and centralization. Rather, social recovery is a stepping stone to achieving greater user security in the field of smart contracts, and alternative methods will be needed in order to meet the needs of users.

Against the backdrop of the revelations over customers’ funds security stemming from the ongoing FTX trial, it is time for the industry to take stock, consider the risks of centralization, and establish a plan to provide true digital ownership for users.

The History of Social Recovery

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For the record, social recovery is not new; it’s been in practice for years. ERC-4337 is just one potential mechanism that can be used to facilitate this feature. Moreover, social recovery is one of the many benefits of multi-signature wallets (multisigs), built with smart contract accounts through account abstraction.

Why are multisigs such a big deal? Previously, self-custody accounts were limited to a single complicated seed phrase to gain access and facilitate transactions. With the transition to smart contract accounts came the development of multi-sigs, which allowed for multiple keys, and therefore multiple users, connected to one smart contract wallet. Now, DAOs and other organizations can harness the power of digital ownership, coordinating as a group without centralized actors.

Along with the innovation of multisigs, social recovery was developed so that if one user lost access to a wallet, other users on the account could help them recover their key. Beyond the case of DAOs, this feature is useful for individual users looking to secure their funds better. Tales of fortunes lost are frequent in the industry, with at least 20 percent of Bitcoin estimated to have been permanently lost due to forgotten keys. Social recovery became a promising solution with trust in centralized actors on the decline.

Not a One Size Fits All Solution

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You might give a trusted neighbor, friend or family member a key to your house in case you get locked out, so why not do the same for your wallet? Social recovery is preferred over storing digital assets on a centralized exchange for many crypto users. The FTX collapse and other exploitations highlight the risk of storing digital assets on centralized exchanges.

But the reality is, not everyone knows their neighbors, and not everyone can trust them. Furthermore, as digital ownership grows, new adopters might not have crypto-savvy friends or family who can become account guardians.

Beware of Centralization

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The shortcomings of social recovery have raised concerns about centralized actors taking on the role of guardianship in a smart contract account, creating dependencies that could harm the community in the long term.

This is all part of a broader conversation about smart contract accounts, such as ensuring that users can move their wallets freely across networks as they would be able to with an externally owned account (EOA) wallet. The aim is to provide users with the experience of Web2 and the freedom of Web3, though that involves a certain amount of compromise.

As social recovery develops, it will likely involve a scale of decentralization – known as “hybrid custody,” where users can choose the degree to which they want to compromise on overall security for greater flexibility and ease of access to their assets. The difference between Web3 platforms that offer hybrid custody and traditional institutions is still significant. Now for the first time, users get to choose their own customizable asset management plan, rather than being limited by the offerings of centralized custodians.

Where Do We Go From Here? The Future of Web3

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A major breakthrough in the industry, social recovery has brought tremendous value and enabled the expansion of Web3’s user base. By eliminating technical barriers to self-custody, this tool has made digital ownership more accessible, finally delivering on the promise of financial freedom.

While social recovery has its shortcomings, no solution is perfect. As such, it should be part of various security measures available to users when they engage with Web3 platforms. Smart contracts enable a number of other features which make key management easier, such as more convenient login methods, two-factor authentication, timelocks, and more.

The mission now is to continue developing key management solutions. By using modular, open-source development stacks, which put account abstraction tools in the hands of more builders, we are already seeing the proliferation of new projects built on smart contracts. Better solutions are on the horizon so long as the community continues to work together to enable digital ownership.


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Safe is the leading self-custody platform and infrastructure provider, currently securing nearly ~50 billion in assets. By leveraging account abstraction, Safe’s mission is to unlock digital ownership by bringing a Web2-level user experience to Web3.

Safe{Wallet} has become the default wallet of choice for Web3 native projects such as AAVE and 1inch, as well as enterprises like Shopify, delivering security and usability without compromising on self-custody. Many of the largest individual asset holders like Punk6529 and Vitalkin Buterin also choose Safe{Wallet} to secure their personal assets. With the launch of Safe{Core}, developers can access a modular and open-source stack enabling account abstraction, providing the foundation to build user-friendly and secure Web3 platforms.


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