Coinbase CEO hints its new layer-2 network could include AML measures

Coinbase chief executive Brian Armstrong has hinted that the firm’s new Layer-2 blockchain network Base may be subjected to transaction monitoring and anti-money laundering measures at launch.

In an interview with Joe Weisenthal on Bloomberg Radio on Mar. 6, Armstrong acknowledged that Base has some centralized components today, adding “it will be more and more decentralized over time.”

However, he then suggested that there will be transaction monitoring and AML requirements for users of the new layer-2 network.

He suggested that Coinbase will have a responsibility in terms of transaction monitoring in the early days, adding:

“I think that the centralized actors are the ones that are probably going to have the most responsibility to avoid money laundering issues and having transaction monitoring programs and things like that.”

Armstrong’s comments were also highlighted up by decentralization advocate Chris Blec in a Twitter post on Mar. 7.

— Chris Blec (@ChrisBlec) March 6, 2023

Base is an Ethereum layer-2 network that offers a secure, low-cost, developer-friendly way for users to build decentralized apps, according to Coinbase.

It is being developed with the “OP Stack” used by Optimism which will enable high-speed transactions on Ethereum. Base was unveiled on Feb. 23 and is currently in the testnet phase, Coinbase has yet to provide a mainnet launch date but it is expected in Q2, 2023.

1/ We’re excited to announce @BuildOnBase.

Base is an Ethereum L2 that offers a secure, low-cost, developer-friendly way for anyone, anywhere, to build decentralized apps.

Our goal with Base is to make onchain the next online and onboard 1B+ users into the cryptoeconomy. pic.twitter.com/RmwZFJzGGs

— Coinbase (@coinbase) February 23, 2023

Blec has previously warned about Coinbase’s latest layer-2 offering in a blog post released in late February, five days after the firm announced Base.

He said that layer-2 infrastructure was quite centralized because they use “sequencers” which are “nodes that construct and execute L2 blocks while transmitting users’ actions from L2 to L1.”

Coinbase, a licensed money transmitter, will be operating the sole sequencer for Base. This raised the question of whether Base would also legally require know-your-customer (KYC) requirements making it the first ever L2 to do so.

Related: L2 is crucial to Ethereum decentralization, censorship resistance, says researcher

Coinbase hasn’t confirmed or denied whether Base would be implementing KYC and AML measures. Blec commented:

“Isn’t it ironic that “DeFi” is heading toward being controlled by the entities that it was originally supposed to be battling?”

However, the crypto community and Ethereum advocates have said Base was a “massive confidence vote” for Ethereum.

Cointelegraph reached out to Coinbase for comment but has not received a response by the time of publication.