Coinbase’s CEO hints that his new Layer-2 network could include AML measures

Coinbase CEO Brian Armstrong has hinted that the company’s new Layer-2 blockchain network Base could be subject to transaction monitoring and anti-money laundering measures upon launch.

In a interview with Joe Weisenthal on Bloomberg Radio on March 6, Armstrong acknowledged that Base has some centralized components today, adding “it will become increasingly 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 some transaction monitoring responsibility in the beginning, adding:

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

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

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

It is being developed with the “OP Stack” used by Optimism that enables fast transactions on Ethereum. Base was unveiled on February 23 and is currently in the testnet phase, Coinbase has yet to give a mainnet launch date, but it is expected in Q2, 2023.

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

He said the layer 2 infrastructure was quite centralized because they use “sequencers”, which are “nodes that build and execute L2 blocks as they send users’ actions from L2 to L1”.

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

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

Coinbase has not confirmed or denied whether Base would implement KYC and AML measures. Blec noted:

“Isn’t it ironic that ‘DeFi’ is on its way to being controlled by the entities it was originally supposed to fight?”

However, the crypto community and Ethereum proponents have said that Base was a “huge vote of confidence” for Ethereum.

Cointelegraph has reached out to Coinbase for comment, but has not received a response as of this writing.