What is Base Network: Coinbase's L2 network?

Coinbase’s History

Coinbase was founded in 2012 by Brian Armstrong and Fred Ehrsam in San Francisco, USA. In 2012, Coinbase launched Bitcoin purchase services via bank transfers. They broke into an empty market and began recruiting the first users, simultaneously improving the interaction with the product, changing the interface, and adding new functions with tokens.

Today, Coinbase is an American company that operates a cryptocurrency exchange platform and is one of the most influential cryptocurrency exchanges on the market. As of December 2023, assets under management amount to almost $80 billion.

This exceptional liquidity can be explained by the fact that Coinbase has transformed traditional financial markets and ensured the mass adoption of cryptocurrencies: between their partnership with BlackRock to launch their ETFs, or the launch of the Coinbase PRO and even Coinbase Commerce offerings. Coinbase easily attracts institutional clients.

Coinbase had one mission: to make cryptocurrency easy to use. The company desires to develop the blockchain so that it better meets the needs and expectations of users, developers, and regulators. Coinbase is undoubtedly one of the most influential companies in cryptocurrency, and its dream is to build a decentralized future on Ethereum.

On February 23, 2023, the company made an important announcement that shocked the crypto community: the launch of the BASE blockchain. The Base project, presented jointly by Coinbase and Optimism, immediately aroused great interest. This initiative, presented as a new step forward toward the introduction of cryptocurrency into everyday life, promises to revolutionize interaction within the ecosystem. The close cooperation of Coinbase and Optimism stands behind Base. Together, these two key players in the ecosystem are working to create a Layer 2 that provides both security and scalability for decentralized applications.

Coinbase’s new Layer 2: Base

The full-scale launch of the Base took place on August 9, 2023. At the same time, functionality for interacting with non-interchangeable tokens appeared. Users have the opportunity to issue commemorative NFTs, complete tasks and receive rewards, as well as reserve cryptocurrencies in Coinbase Wallet.

Interestingly, Coinbase's launch of the Base blockchain is not unprecedented: in 2020, Binance, Coinbase's main competitor, introduced its own blockchain, BNB Chain, which today is considered the third most influential blockchain on the market in terms of TVL.

This approach not only confirmed the ability of a centralized exchange to expand its influence and reach but also demonstrated the potential of such an initiative in terms of the economic development of the ecosystem.

The Base blockchain represents a technological breakthrough in the cryptosystem. Built as a Layer 2 based on Ethereum security, it uses Optimistic Rollup technology to facilitate high-volume transactions at a low cost.

One of the main advantages of the Base is its integration with the Coinbase application and the Coinbase wallet: each Coinbase user will use cryptocurrencies in their account directly on the Base blockchain. This feature promises smooth usage of the blockchain by users, which is currently one of the biggest obstacles. It is also a great potential for the inflow of liquidity into the ecosystem. As mentioned earlier, the Coinbase application contains twice as many cryptocurrencies as all blockchains combined.

The integration of Base into the Coinbase application also opens the way to the application of KYC (know your customer) procedures directly on the blockchain, since each Coinbase user has already been identified. Indeed, one of the biggest obstacles to the introduction of cryptocurrencies is the regulatory aspect: the example of MiCa in Europe showed that the appearance of identification on the blockchain will not take long to wait. Considering that Coinbase has more than 110 million users worldwide, the Base could significantly change the use of blockchain.

What is Layer 2?

Second-level scaling is a technology that works on top of the blockchain protocol and increases the speed and efficiency of the underlying blockchain. Layer 2 is a major innovation that allows you to increase the performance of transaction processing in the blockchain without compromising its security.

Key findings:

The term Layer-1 means the blockchain itself, and Layer-2 refers to the network that is located on top of the main blockchain. It works by taking over the processing of transactions, thereby offloading the main blockchain (Layer-1) from large-scale operations, which allows the latter to work more efficiently.
Layer-2 solutions are designed to solve the scalability problem by processing transactions outside the main network.
The benefits of Layer-2 solutions include increased transactions per second (TPS), lower gas fees, and maintaining security and application-specific networks.
When combined, transactions are processed outside the main chain, and then a record of the state of the Base blockchain is periodically published on the Ethereum blockchain to ensure security. This method allows you to process numerous transactions with a single record in the main chain, thereby significantly increasing the efficiency of transaction processing.

Advantages of Layer-2 solutions:

Increasing the number of transactions per second (TPS) improves the user experience and reduces network congestion.
Transactions are consolidated into a single package before being recorded on the main network, which reduces gas charges.
Any updates to the Layer-2 solution do not change the underlying blockchain, as Layer-2 is built on top of the blockchain, which helps ensure network security.
Allows you to create Layer-2 networks for specific applications that are specifically designed to optimize certain functions.

Disadvantages of Layer-2 solutions:

An outflow of liquidity from the main blockchain is likely.
Potential security and privacy vulnerabilities; users should conduct their research (DYOR) before using Layer-2 solutions.
It may make it difficult to interact with other Ethereum-based applications (for example, when using L2).

What is Optimistic Rollup?

Optimistic Rollups operate on the principle of optimism, which means that they assume that all transactions are valid. Every time a transaction is made, it is immediately included in the pooling chain.

However, there is a period during which anyone can challenge the validity of the transaction. If the transaction is disputed, then it is verified. If it turns out to be invalid, it is rejected, and the person who submitted the fraudulent transaction is punished.

The process of challenging and verifying is also not without problems. It relies on the existence of "honest" auditors who actively monitor and challenge fraudulent transactions. In addition, due to the dispute window, withdrawal of funds from the savings chain may take some time, usually a week or more. Despite these challenges, Optimistic Rollups represent a promising technological innovation that can play a key role in the scalability of Ethereum!

Advantages of the Optimistic Rollups:

Low gas charges.
Increased throughput.
The possibility of concluding smart contracts.
Safety.

Disadvantages of the Optimistic Rollups:

Long withdrawal time.
Potential mismatch of incentives and rewards between network members.
Baseline-1 can censor transactions.

As a super network chain in the Optimism ecosystem, the Base fits perfectly into the compatibility philosophy underlying Optimism's design. This integration implies increased flexibility between Base and Optimism, which allows for more direct and efficient interaction between the two blockchains.

Super Chain Optimism aims to combine disparate Optimistic Rollups into a single whole that provides the benefits of each of them while facilitating interaction between them. This revolutionary concept is designed to make launching Tier 2 as simple as deploying a smart contract on Ethereum while providing greater flexibility.

What are the distinctive features of the Base?

Base is part of the Super Chain L2 ecosystem. The latter is a single blockchain network built using OP Stack, which assumes significant opportunities for scaling and interoperability, as well as ease of deployment of new systems.

Being an L2 solution, Base relies on the security level of the Ethereum network. The Base platform is also EVM-equivalent. This means that developers have the opportunity to run applications on the Base without making significant changes to the code. Popular tools like Foundry and Hard Hat are available to the creators of apps. According to CoinGecko, the fees on the Base network are 10 times lower than on the main Ethereum network.

Among the disadvantages of the Base system, it can be noted:

1. Centralization. At the current stage, Coinbase functions as the only node of the Base sequencer, which implies significant control over transactions, their processing, and ordering. However, according to the roadmap, in 2024, the developers intend to achieve "decentralization and security comparable to Ethereum.

2. A long withdrawal period, which takes about 7 days. This is due to the peculiarities of fraud-proofs from Optimism.

How is the Base ecosystem developing?

Several well-known DEX and other DeFi protocols have added support for Base, including:

Symbiosis Finance;
Uniswap;
Compound;
1inch;
PancakeSwap.

Forks based on the new L2 solution have appeared:

Aave v3 landing protocol (Seamless Protocol);
The largest decentralized Velodrome Finance (Aerodrome) exchange in the OP Main net ecosystem.

The value of the Base offer for developers

In the dynamic and competitive world of blockchain development, developers play a central role. It is they who, thanks to their ingenuity and technical expertise, create applications that attract and retain users. Whether it's developing DeFi applications, games, or developing new social networks on the blockchain, developers are the real builders of the ecosystem. Offering significant value to developers is essential for any blockchain that seeks to have a long-term impact.

It is with this in mind that development on the Base blockchain offers developers many advantages. Among the most notable, we find the ability to conduct transactions without gas fees: in fact, thanks to an easy-to-use API that guarantees the concept of "account abstraction", Base allows developers to set up transactions without gas fees for their dApps. These features significantly reduce the costs associated with interacting with the blockchain, which makes Base especially attractive to developers.

Moreover, Base is compatible with the Ethereum Virtual Machine (EVM) and Super Chain, which greatly facilitates the creation of multi-chain applications: the computer code of applications on Ethereum is easily transferred to Base. This way, developers can work on multiple blocks simultaneously and transparently without worrying about compatibility issues or technical difficulties.

Ease of use and compatibility are the main advantages of Base, which promises to stimulate innovation and creativity in the developer community.

Since Base is compatible with EVM, attracting users is just as simple: just connect to a Metamask or Rabby wallet, as on Ethereum/Polygon, by adding the RPC of the Base blockchain to Chainlist.org. In one week, more than 18,000 developers deployed 55,000 smart contracts on the Base test network. These impressive numbers demonstrate the enthusiasm and interest that Base arouses in the developer community.

In addition, as mentioned earlier, the direct integration of Base with Coinbase opens up the possibility of creating KYC (know your customer) applications on the blockchain. Indeed, since all Coinbase users have already been identified, developers can create applications using this KYC information.

Base offers developers several opportunities and advantages that expand the boundaries of what is possible with the help of blockchain.

The Impact of Base on the Crypto Ecosystem

The emergence of a blockchain such as Base, developed by a centralized organization such as Coinbase, gives rise to interesting reflections on the evolution of the crypto ecosystem: where some advocate full decentralization and consider the emergence of Coinbase as a bad example, others welcome the desire of this pioneer to create such a large infrastructure for their customers.

At the very least, this move seems to mark a turning point in the interaction of centralized platforms with the blockchain. By promoting gradual decentralization, Base can allow Coinbase to maintain its influence while encouraging broader community participation. This is a dynamic that can change the balance between centralized and decentralized players in the crypto ecosystem.

Base has already started integration with popular decentralized applications. Among these DApps, there are such famous names as Uniswap, Balancer, Aave, and Chainlink. To date, the total blocked value (TVL) on Uniswap is only about $4 billion, which is well below the $80 billion of assets held by Coinbase.

Thanks to Base, these decentralized applications can benefit from access to more liquidity and more users, which can accelerate their growth and adoption.

Given the integration of Base with Coinbase, the growing number of developers using the platform and the ability to integrate with popular decentralized applications in the Base ecosystem seem well positioned to play a leading role in the blockchain ecosystem. However, as with any new technology, it is important to closely monitor its development and adoption by the community to assess the true impact on the industry.

What is the future of the Base Blockchain

The Base network developed by Coinbase is attracting more and more attention because of its high performance and scalability, which makes it one of the most sought-after solutions for decentralized applications (dApps).

According to numerous analysts, one of the key reasons for the popularity of the Base network was its ability to significantly reduce transaction costs. Analysts say that the growth in popularity is also associated with the introduction of new solutions aimed at improving the user experience. The Base network offers fast and cheap transactions, which attracts those who are looking for an alternative to the overloaded main Ethereum network.

One of the fundamental aspects of the Base philosophy is the stated commitment to open source and decentralization. Such positioning is essential to promote transparency, collaboration, and innovation in the developer community. However, as with any project that demonstrates these values, it is extremely important to check whether Coinbase's actions are consistent with its statements.

At the moment, the signs are positive, as Coinbase has announced that it is actively contributing to the Optimism open-source stack and encouraging the participation of other developers. In addition, part of the channel's revenue will be transferred to the Optimism fund.

In addition, the Base actively cooperates with other projects in the ecosystem, which contribute to its rapid development and adaptation. Recently, the management announced a partnership with several large DeFi projects, which further strengthened its position in the market. As a result, the volume of blocked funds (TVL) in the Base network is growing dynamically.

It is important to note that the growing popularity of the network is associated with its technological innovations. The implementation of scalability improvement solutions such as Optimistic and ZK-Rollup allows you to significantly increase throughput without compromising security and decentralization. These innovations make Base attractive to developers seeking to create high-load dApps.

Base's desire to become a decentralized and closed network presents an interesting challenge. Decentralization is a core value of the blockchain philosophy, but practical implementation can be difficult, especially for an initially centralized organization such as Coinbase. This requires gradual and purposeful development, transparency, and a willingness to share power and control with the community.

Note that today Base is built on the same technology as Optimism, which has only one transaction sequencer (validator). Coinbase announced on its blog that it is working with OP Labs (Optimism developers) to decentralize the verification process starting this year.

Want to know additional information? We have a page dedicated to the Base network: look here.

Conclusion

The Base blockchain, created by Coinbase in collaboration with Optimism, represents an innovative and potentially transformative force in the field of cryptocurrencies. With its progressive approach to decentralization, commitment to open source, and seamless integration with the dApps ecosystem, Base promises to redefine how we interact with blockchain.

At the technological level, Base demonstrates outstanding ambitions. By combining the advantages of Layer 2 and Optimistic Rollup technologies, as well as adopting the concept of compatibility through integration as a Super Chain into the Optimism ecosystem, Base positions itself at the forefront of blockchain development.

The main value offered by Layer 2 solutions is to provide space for experimentation. Applications and users can try out new features in a local environment with lower fees. Blockchain projects and Layer-2 solutions on the Ethereum blockchain have become one of the most common answers to the questions of blockchain scalability. With a lot of attention to this technology, it promises a future with widespread adoption, accompanied by low transaction fees.

Coinbase plans to further improve the Base platform by increasing efficiency and security, while reducing fees and settlement time.