The company’s new layer-2 blockchain network Base may be susceptible to transaction monitoring and anti-money laundering measures at launch, according to Coinbase CEO Brian Armstrong’s hints.
While acknowledging that Base currently has some centralized components, Armstrong also stated that “it will be more and more decentralized over time” in a discussion with Joe Weisenthal on Bloomberg Radio on March 6.
But he later said that users of new layer-2 network would have to comply with transaction monitoring and AML standards.
In the early going, he said, “Coinbase will have a duty in terms of transaction monitoring,” adding:
“I believe that the centralized actors are the ones that are presumably going to have the most obligation to avoid money laundering issues and having transaction monitoring programs and that’s what things like.”
Decentralization proponent Chris Blec also brought attention to Armstrong’s remarks in a March 7 tweet.
Base is an Ethereum layer-2 network that, according to Coinbase, provides users with a safe, affordable, and developer-friendly method to create decentralized apps.
High-speed transfers on Ethereum will be possible thanks to the development of the “OP Stack” used by Optimism. Base is presently in the testnet phase after being unveiled on February 23. The mainnet is anticipated to debut in Q2, 2023, though Coinbase has not yet provided a date.
In a blog entry published in late February, five days after the company announced Base. Blec issued a previous caution about Coinbase’s most recent layer-2 offering.
He claimed that because layer-2 infrastructure uses “sequencers,” which are “nodes that construct and perform L2 blocks while transmitting users’ actions from L2 to L1,” it is quite centralized.
The single sequencer for Base will be run by licensed money transmitter Coinbase. This raised issue of whether Base, first-ever L2 to do so, would also legally impose Know Your Customer (KYC) requirements.
Whether Base would be implementing KYC and AML measures hasn’t been verified or denied by Coinbase. Blec said this:
“Isn’t ironicly ‘DeFi’ is making a beeline for being constrained by the entities that it was initially expected to fight?”
Nevertheless, the cryptocurrency community and supporters of Ethereum have claimed that Base was a “massive trust vote” for Ethereum.