Brian Armstrong, the CEO of Coinbase, has made a suggestion that the company’s upcoming layer-2 blockchain network Base may be launched with transaction monitoring and anti-money laundering controls.
Armstrong stated that Base currently has some centralized components in an interview with Joe Weisenthal on Bloomberg Radio on March 6, but he also said that “it will be more and more decentralized over time.”
But, he went on to say that users of the new layer-2 network will be subject to transaction monitoring and AML rules.
In the beginning, he said, Coinbase will be responsible for transaction monitoring. He continued:
“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.”
Chris Blec, a proponent of decentralization, brought attention to Armstrong’s remarks in a March 7 tweet.
According to Coinbase, Base is an Ethereum layer-2 network that provides customers with a safe, affordable, and developer-friendly means to create decentralized apps.
It is being created using Optimism’s “OP Stack,” which will allow for quick transactions on Ethereum. Base entered the testnet phase on February 23 after its unveiling. Although Coinbase hasn’t yet announced a mainnet launch date, it is anticipated to occur in Q2, 2023.
In a blog post published in late February, five days after the company revealed Base, Blec issued a warning on Coinbase’s most recent layer-2 offering.
Because of the employment of “sequencers,” which are “nodes that generate and execute L2 blocks while relaying users’ activities from L2 to L1,” he said that layer-2 infrastructure was extremely centralized.
The single sequencer for Base will be run by Coinbase, a licensed money transmitter. This raised the issue of whether Base will become the first-ever L2 to formally impose Know Your Customer (KYC) rules.
In terms of whether Base would be putting KYC and AML procedures in place, Coinbase hasn’t confirmed or denied it. Comment from Blec:
“Isn’t it ironic that ‘DeFi’ is heading toward being controlled by the entities that it was originally supposed to be battling?”
It was, according to the cryptocurrency community and supporters of Ethereum, a “huge confidence vote” for the platform.
