What is Base? Coinbase’s L2 Chain’s Opportunities, Decentralization Risks & More

KEY TAKEAWAYS

Base, an Ethereum layer-two (L2) blockchain developed by Coinbase, is creating a lot buzz. The anticipation stems from Coinbase's reputation as a major player in the crypto industry, potentially propelling Base's growth. However, concerns loom around centralization, given Coinbase's influence as the sole sequencer node. Delays in transferring funds from L2 to L1, and potential vulnerabilities from OP stack upgrades also raise questions. Nonetheless, Base's integration potential with the "superchain" and Coinbase's push for DeFi adoption make its impact highly anticipated in the crypto realm.

Base, an Ethereum layer two (L2) blockchain developed by Coinbase, is opening its mainnet to all users on 9 August. There are high expectations of Base, which stem from Coinbase’s reputation as a major player in the crypto industry.

What is Base, and why is it grabbing the attention of the crypto community? Let’s find out in this article.

What is Base?

Base is an open-source optimistic rollup built on the Ethereum blockchain.

Rollups are L2 blockchains built to help layer one (L1) blockchains like Bitcoin and Ethereum scale. They bundle hundreds of transactions and submit them to L1 as a single transaction, which reduces gas fees for the end user.

Base was created by Coinbase using Optimism’s OP stack. It is the second L2 deployed on the OP Stack after Optimism Mainnet. It is EVM-compatible, which allows developers to deploy their EVM codebase from Ethereum and other compatible chains seamlessly to Base.

Starting 9 August 2023, users can bridge their mainnet ETH over to Base.

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What is the Hype About Coinbase’s Base?

Ethereum has a number of rollups that have been online for over a year now. Two of the biggest Ethereum rollups – Arbitrium and Optimism – use the same technology i.e., optimistic rollups utilized in the Base L2.

So what’s with all the hype?

Coinbase’s Reach and Capital

The Base chain is built by a crypto powerhouse, Coinbase. Alongside Binance, Coinbase is arguably the biggest crypto-focused corporation in the world. The company played a crucial role in popularizing crypto investing in the U.S. over the last decade and is now operational in more than 100 countries around the world.

Coinbase is not just a crypto exchange. The company develops crypto wallets, provides staking and custody services, and offers developer tools, among others.

More importantly, Coinbase has over $130 billion in assets on its platform, about 7.3 million monthly transacting users (as of 30 June 2023), and over 50 institutional clients such as BlackRock, a16z, and Grayscale.

Now, Coinbase wants Base to be the “on-chain home for Coinbase products, users, and assets.” Therefore, it is expected to attract top crypto developers as they will be able to leverage Coinbase’s vast user base and asset pool.

Although Base is built to be an open-source and decentralized blockchain, it will continue to be heavily influenced by Coinbase. But more on that later.

A Superchain with OP Stack

The OP stack is a standardized and open-source development stack that developers can use to build blockchain networks. The OP stack consists of different software components managed and maintained by the Optimism Collective.

The main goal of the OP stack is to create a “superchain”, which is a network of L2 chains that share governance, upgrades, communication layer, bridges, and an open-source development stack.

Base is the second L2 to be built using the OP stack (after Optimism mainnet). If the “superchain” does take off, decentralized applications built on Base will be easily integrated with the “superchain” and can interact with users across multiple chains.

Optimism Collective

The Optimism Collective is a crypto community of companies and developers that manage and maintain the OP stack. The Optimism Collective is led by the Optimism Foundation. Coinbase joined as the second core developer to work on the OP stack.

The Optimism Collective aims to provide funding to developers creating public goods for the crypto community. Governance of the Optimism Collective is in the hand of OP token holders, who can submit and vote on various types of governance proposals, including fund grants, protocol upgrades, treasury appropriations, and more.

Coinbase has said that it will provide a percentage of the fees earned through transactions on Base to the Optimism Collective.

Optimism Collective said:

“By properly rewarding public goods, we can create a collaborative ecosystem that will grow, grow and grow, creating a sustainable future for the digital city of Optimism, Ethereum, and the open internet.”

Disadvantages of Base L2: What Are the Concerns About Base?

To give readers a fair summary of Base, we have to talk about the potential risks and limitations of the blockchain.

Decentralization

The degree of decentralization in Base is among the biggest concerns pointed out by the crypto community. How decentralized is Base? How much influence does Coinbase have?

According to Base’s terms of service, Coinbase is the only sequencer node supporting transactions on Base, at the time of writing.

A sequencer is a node that receives, records, and reports transactions on a rollup. It is the sequencer that credits funds to the user’s rollup account after receiving proof of the deposit on the rollup contract.

Coinbase has said that additional nodes may be provided by third parties in the future. Coinbase also added that it reserves the “right to charge and modify the fees in connection with your use of the Coinbase Sequencer.”

Coinbase also operates the Base Bridge, which enables the transfer of crypto assets between Ethereum and Base.

Optimistic Rollup Limitations

One of the biggest limitations of optimistic rollups is the delay in transferring funds from the rollup to the L1.

An optimistic rollup assumes that all the transactions on the chain are valid. The rollup is ‘optimistic’ about the honesty of the participants and bundles transactions and submits it to the L1 without checking its validity.

The delay works as a security feature to give the optimistic rollup enough time to correct fraudulent transactions. This delay is referred to as the “challenge period,” where any user can challenge suspicious transactions.

Coinbase explained:

“Transferring from Ethereum to Base usually only takes a few minutes, but that timeline is not guaranteed. Transferring from Base to Ethereum takes approximately 7 days.”

OP Stack Dependence

The Base L2 is vulnerable to periodic changes and upgrades introduced by the Optimism Collective.

New protocol upgrades introduced in the OP stack may introduce new risks in the form of bugs, cyberattack vectors, and malfunctions to Base. Changes may also affect the normal operations of Base such as bridges and sequencers.

Important Information on the Base Blockchain

  • Base does not have a native token. Gas fees are paid in ETH;
  • Base does not have a governance token, unlike other L2 chains, Optimism and Arbitrium;
  • The Base mainnet has been open to developers since mid-July 2023;
  • Base has already seen its first rug pull after deployers of a memecoin called BALD removed millions of dollars worth of crypto from the market;
  • Coinbase is currently promoting Base via a month-long “On-chain Summer” campaign. Users can mint commemorative NFTs, earn token rewards by completing on-chain quests, and more.

How to Use Coinbase’s Layer 2 Base Blockchain?

  1. You will need ETH to use the Base blockchain;
  2. However, you will first have to bridge your ETH across to the Base blockchain first;
  3. You can connect your crypto wallet to the Base Bridge and transfer ETH from Ethereum to Base. It will take a few minutes for this transfer;
  4. You can even transfer whitelisted ERC-20 tokens over from Ethereum to Base;
  5. Once you have Base ETH, you will be able to interact with decentralized applications (dApps) on Base.
  6. Remember, it will take about 7 days to transfer tokens from Base to Ethereum.

The Bottom Line

Coinbase is a leader in the crypto industry. The Brian Armstrong-led crypto exchange was instrumental in introducing Bitcoin to millions of new users. Now with the introduction of Base, Coinbase wants to take it further by introducing decentralized finance (DeFi) to “one billion users.”

The introduction of Base in February 2023 was one of the biggest crypto announcements of the year. Its August launch is poised to leave a substantial mark on the crypto landscape.

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Mensholong Lepcha
Crypto & Blockchain Writer

Mensholong is an experienced crypto and blockchain journalist, now a full-time writer at Techopedia. He has previously contributed news coverage and in-depth market analysis to Capital.com, StockTwits, XBO, and other publications. He started his writing career at Reuters in 2017, covering global equity markets. In his free time, Mensholong loves watching football, finding new music, and buying BTC and ETH for his crypto portfolio.