Base: Features, Drawbacks, and Future of Coinbase’s L2

Base, the Layer 2 blockchain launched by Coinbase on Ethereum, is the first blockchain to be launched by a publicly traded company.

Built to solve some of the Ethereum blockchain’s issues, such as scalability and transaction processing cost, Base was developed in collaboration with Optimism, another Layer 2 chain.

Base leverages Optimism’s standardized and open-source development stack that developers can use to build blockchain networks. This adds Base to the list of Layer 2s that Optimism expects to form a Superchain of interoperable blockchains.

Base was launched in August and has quickly become popular among Decentralized Applications (Dapps) developers who build on it to get access to Coinbase’s massive ecosystem of 110 million verified users and more than $80 billion in assets.

Key Features of Base

1. Scalability

Like its competitors, Arbitrum and Optimism, Base is a rollup, all of which are built to enable Layer 1 blockchains such as Ethereum and Bitcoin to scale. To do this, Base uses Optimism’s Optimistic Rollup Technology, which allows it to bundle multiple transactions.

By doing so, Base can submit the bundled transactions as a single transaction on the Ethereum mainnet.

This reduces the transactional load — enabling Ethereum to perform more efficiently and process more transactions per second.

Additionally, Base handles most transactions and computations away from the Ethereum main chain. As a result, Base can process many transactions simultaneously, improving the speed of processing transactions.

2. Low Gas Fees

Gas fees are a long-standing issue on Layer 1 blockchains that chains always want to address. Base has reduced the gas fees per transaction to a rate lower than that of the Ethereum mainnet.

While transactions on Ethereum can be anywhere from a couple of dollars to many multiples of that — and change by the minute — gas costs on Base can be just a couple of cents each, which opens doors to new markets, such as microtransactions.

3. Gasless Transactions

Gasless transactions are a type of meta-transaction that allows users to perform critical actions in an app or game without paying gas fees. This is made possible by a concept known as account abstraction.

Typically, users interact with Ethereum through External Owned Accounts (EOAs), the exclusive means for transaction initiation or smart contract?execution. Account abstraction, however, is a situation where a user can interact with the network without necessarily possessing the associated account.

As such, a user does not need to hold tokens to pay for transactions and can have their transactions paid for by another user. This streamlines their experience by reducing the hustle of managing private keys and facilitating seamless participation in Ethereum’s decentralized ecosystem.

4. User Experience

Crypto platforms are known for their lack of user-friendly interfaces. This makes it hard for beginners to get on board and adopt most of the solutions and services offered by the Web3 space.

It also makes it less attractive for developers to build their projects on the solution, reducing the possibility of more users and income.

However, consistent with Coinbase’s mission to make blockchain technology user-friendly, accessible, and intuitive, Base was designed with developers in mind. Coinbase created clear and concise documentation and an easy-to-use API to make a developer’s journey easier.

Furthermore, its emphasis on bettering its users’ experiences and adding more user-friendly features for beginners, such as ratings and reviews of dApps, is slowly but surely helping the platform inch closer to its goal of one billion users.

5. Use Cases

The development and launch of Base not only encouraged some of the fundamental use cases of crypto, such as payment and trading using cryptocurrencies, but it also led to the realization of others, such as decentralized social media platforms.

One such application is Friend.tech, the social media app that was the buzz of Q3 20323, which allows users to tokenize their social media accounts. Users can then sell fractional ownership by leveraging Base’s technology.

This platform has driven the adoption of web3 and Base, accounting for a significant portion of traffic on the network as of September 2023.

The network boasts of a favorable network with attributes such as interoperability and efficient performance in addition to the existing user base that Coinbase has, which opens Base up to an increased possibility of use cases.

Drawbacks of Base

1. Centralization

In the realm of cryptocurrencies, decentralization is a fundamental concept. Concerns about Base’s decentralization have surfaced within the community following its current structure and organization.

While the platform has plans and strategies for decentralization in the future, Coinbase is still the only sequencer of the network at the moment. This means that Coinbase controls all the servers responsible for validating transactions.

Coinbase is, therefore, solely responsible for sequencing and finalizing transactions in a specified order. The company also has the power to establish and change the Coinbase Sequencer costs.

Having the company in control of all the power of transaction processing and ordering in a single entity creates a centralization that, at least currently, goes against the grain of crypto. This has introduced a chance for skepticism and lack of trust in the platform, which affects the number of projects that build on the network.

2. Withdrawal Delays

One of the most common issues that arise from Optimistic Rollups is long withdrawal periods. More precisely, withdrawals on Base are said to take about seven days, which is exceptionally long for customers to wait for their funds.

The delays can be caused by several factors, including the design of Optimism’s anti-fraud system. This system is said to be ‘optimistic’ about the honesty of the participants and bundles transactions, hence, it considers all transactions as valid and submits them to the Layer 1 blockchain.

However, as a security mechanism, the system allows users to challenge transactions and submit potential fraud proofs within this specified time frame. This leads to a delay in the form of a ‘Challenge period.’

As a result, withdrawals from Ethereum to Base could take a few minutes, whereas those from Base to Ethereum could take days.

3. Security

Base leverages the security of the Ethereum network to secure transactions and assets. It also uses the fraud-proof mechanism used by all rollups on the stack to validate transactions.

Despite offering a significant level of security to the network, the association with Optimism also introduces vulnerabilities and new points of attack that could be exploited to compromise the system.

The fraud-proof mechanism also faces several challenges, including reward incentive issues for participants and vulnerability to data withholding attacks. This exposes Base to securities issues that undermine its ability to secure assets and transactions.

Looking Forward

Compared to its rival networks, Base has performed exceptionally since its launch, setting new records of user active wallets(UAW). The blockchain registered 52,692 UAW on its first day following its official launch, surpassing Optimism, and by the next day, this number had skyrocketed to an unprecedented 77,294.

This shows the enthusiasm among both users and developers to adopt the network and build projects on it.

Additionally, Coinbase has implemented several plans and roadmaps to solve some of the surfacing concerns and better the network. Among them is a goal towards decentralization to establish the platform as less controlled by the exchange, breeding more trust and reliability within the crypto community.

Coinbase has also worked with Optimism for over a year and contributed to developing EIP-4844, also known as proto-danksharding, which aims to increase block space and lower gas fees.

This upcoming Ethereum upgrade can decrease Layer 2 transaction fees by 10-100x, which could lead to a bullish dynamic for Base and Optimism and associated projects.

The Bottom Line

The launch of Base by Coinbase has been one of the most noteworthy developments in crypto. The network has brought several benefits into the space, leading to increased adoption of crypto and Web3 in general.

Base continues to leave a lasting impression with its remarkable user interaction and flexible use cases, such as decentralized finance and non-fungible tokens (NFTs).

Its rising community support, solid institutional support, and innovative technology make it a formidable competitor in the Layer 2 space.