Automating Recurring Payments with Ethereum Smart Contracts
The use of blockchain technology in the financial industry has gained significant attention in recent years due to its potential to revolutionize traditional financial systems and improve the efficiency and security of financial transactions. One area where blockchain technology has the potential to make a significant impact is the automation of recurring payments.
In traditional financial systems, it is easy to set up automatic recurring payments through online banking platforms or by linking a credit card to a merchant account. However, automatic recurring payments are more complex on the Ethereum network, the largest blockchain network by on-chain payment volumes. This is due to the presence of two types of accounts on the Ethereum network: Externally Owned Accounts (EOAs) and Contract Accounts (CAs).
EOAs, also known as user accounts, are controlled by a private key and can initiate transactions on the Ethereum network. CAs, on the other hand, is associated with code that can be executed but cannot initiate transactions on their own. In order to enable automatic recurring payments on the Ethereum network, it is necessary to use a smart contract as an intermediary between the EOA of the user and the CA of the recipient.
One solution that Visa proposes is using Account Abstraction, a leading Ethereum developer proposal, to automate recurring payments for self-custodial wallets. A self-custodial wallet is a type of digital wallet in which the user has sole control over the wallet and the private keys. In order to make payments with a self-custodial wallet, the user must actively initiate each transaction, which can be inconvenient and time-consuming.
Using a smart contract as an intermediary allows for the automation of payments without requiring the user's active participation. The smart contract can contain the necessary logic to automatically pull funds from the user's EOA at the designated intervals and transfer them to the recipient's CA. This solution not only improves the convenience and user experience for self-custodial wallet holders, but it also has the potential to increase the efficiency and security of financial transactions on the Ethereum network.
As blockchain adoption continues to increase, we will likely see more solutions that leverage smart contracts to enable the automation of payments and improve the functionality of digital wallets. The proposal by Visa is a promising example of the potential for smart contracts to enhance the convenience and user experience of blockchain-based financial transactions.