Analyses
23
Aug
base

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What is Base?

Base is a smart contract platform that provides a secure, affordable, and developer-friendly platform for decentralized applications. Apart from Base, several well-known Ethereum Layer 2 solutions exist, such as Polygon, Arbitrum, and Optimism. Coinbase has announced that Base will not have a native (built-in) token.

Coinbase does not yet support direct Ether (ETH) transfer to the Base network, but the feature will be launched shortly. Base can have an enormous impact on both Coinbase and the entire crypto market. Coinbase sees Base as playing a central role in its future business.

What is Base?

Base is a smart contract platform that provides a secure, affordable, and developer-friendly platform for decentralized applications. It is also an Ethereum Layer 2 solution, which means it derives its security from the Ethereum blockchain and uses Ether (ETH) for paying transaction fees. Base is built using the OP Stack architecture offered by Optimism and developed by Coinbase, one of the world’s largest cryptocurrency exchanges.

Layer 1 (L1) refers to Ethereum’s blockchain (Ethereum MainNet). Layer 2 (L2), on the other hand, is a blockchain built on top of Ethereum. Layer 2 reduces the transaction load on Layer 1 and helps the Ethereum ecosystem scale. Several Layer 2 solutions are already on the market. The most popular L2s are Polygon, Arbitrum, and Optimism.

Base has several advantages over Ethereum. These include better scalability, higher transaction capacity, and lower transaction fees. Because Base is linked to the Ethereum blockchain, these advantages can be achieved without compromising security.

Coinbase has defined four core principles for Base:

  1. Security provided by Ethereum
  2. A project authorized by Coinbase
  3. Low fees
  4. Open source code

Base is also an EVM (Ethereum Virtual Machine) compatible blockchain. This means that applications built on the Ethereum platform can easily be moved (cloned) to the Base ecosystem. Thanks to this compatibility, developing Base applications is straightforward.

To learn more about Ethereum and its technology, check out this comprehensive beginner’s guide: What is Ethereum (ETH)? First, it is essential to understand how Ethereum works if you want to understand Base.

Base has been in public use for about two weeks. Over 50 DeFi applications are already on Base, including Uniswap, Compound, Balancer, and Sushiswap. More and more applications from the Ethereum ecosystem will soon be found on the Base platform.

Base vs. competing Layer 2 solutions

Apart from Base, several well-known Ethereum Layer 2 solutions exist, such as Polygon, Arbitrum, and Optimism. It is good to remember the close relationship between Base and Optimism because Base utilizes Optimism’s infrastructure through the OP Stack. The relationship between these two projects is so close that they can be seen as complementary solutions.

Arbitrum differs slightly from Optimism and Base from a technical point of view. The difference comes from the way Arbitrum’s transactions are verified. Arbitrum’s multi-layer transaction verification can be considered the most advanced L2 solution. From an end user’s point of view, this is reflected in Arbitrum’s transaction fees, which are lower than its competitors.

A separate article on our website presents the Optimism and Arbitrum technologies in more detail. Click Arbitrum and other Ethereum Scaling Solutions to learn more about the topic.

Ethereum’s L2 sector can be seen as one of the most competitive sectors in the crypto industry. How can Base stand out from other L2 solutions on the market?

Base’s biggest trump card is Coinbase. Coinbase is the second largest crypto exchange on the market in terms of trading volume and the number of customers. Thanks to Coinbase, Base’s decentralized apps have access to a massive user base. Below is an image from Coinbase’s homepage.

coinbase front page

Base combines all the features offered by Layer 2 solutions with Coinbase’s best practices. Transferring funds from Ethereum’s main chain to L2 networks has, until now, been a complex process requiring the use of token bridges. Coinbase aims to make transferring funds to Base as simple as possible, which gives Base a significant advantage over other L2 solutions.

Decentralized applications on Base will have direct access to Coinbase’s ecosystem and the opportunity to share Coinbase’s customer base of over 100 million users and over 80 billion customer assets. Coinbase also ensures sufficient funds are available for the development of Base.

Base does not have a token

Coinbase has announced that Base will not have a native (built-in) token. This is not surprising, considering the situation in the United States regarding regulating cryptos. As a company, Coinbase is already fighting a legal battle against the SEC, so launching the Base token would probably have been a bad idea.

In this respect, Base differs from other Ethereum Layer 2s. Both Arbitrum and Optimism have launched tokens. However, it is good to remember that in Ethereum’s Layer 2 solutions, transaction fees are always paid in Ether (ETH). Arbitrum’s ARB token and Optimism’s OP token are, therefore, governance tokens.

If an investor wants to benefit from Base’s possible success, the best option is probably to buy Coinbase stock (ticker: COIN). This gives you an indirect exposure to Base.

Transferring funds to Base

Coinbase does not yet support direct Ether (ETH) transfer to the Base network, but the feature will be launched shortly. ETH must be transferred to the Base network via a separate token bridge. You need ETH in your wallet when using Base since transaction fees are paid with Ether in all Ethereum’s Layer 2 networks.

To transfer funds to the Base network, do the following:

  1. Download a  Web3-compatible wallet MetaMask
  2. Add Base network data to MetaMask via chainlist.org
  3. Use the official Base Bridge to transfer Ether (ETH) from the Ethereum network to the Base network

If you haven’t used token bridges before, you can find a lot of guides on YouTube by searching “how to bridge eth to base.” Base Bridge also allows you to transfer Ether from Base to Ethereum.

The impact of Base on the future of Coinbase

Base can have an enormous impact on both Coinbase and the entire crypto market. Base allows large institutions to utilize the benefits of decentralized apps with a trustworthy and regulated partner. Coinbase’s regulatory solid status and Base’s connection to Ethereum have attracted the attention of several large institutional players toward Base.

However, it is good to remember that Base is not the first blockchain launched by a cryptocurrency exchange. Binance’s BNB Chain has been in operation for several years. BNB Chain is a separate blockchain, while Base is an “Ethereum extension.” Other exchanges (e.g., KuCoin) also have launched blockchains.

Coinbase’s Base is a business solution designed to address the growing interest of investors and institutions in DeFi. Base also opens up a new revenue source for Coinbase. If successful, Base will generate a steady income stream for the company. Coinbase could easily collect $50-100 million annually from Base’s transaction fees.

Base can be seen as a highly positive thing for the DeFi market. The presence of a large institutional player will undoubtedly increase interest in the DeFi sector.

Summary

Coinbase sees Base as playing a central role in its future business. Since its foundation, the company’s mission has been to increase financial freedom worldwide. What better way to do this than to offer people easy access to a decentralized ecosystem?

To summarize, Base is Ethereum’s L2 scalability solution launched by the cryptocurrency exchange Coinbase. Base is implemented using Optimism’s OP Stack infrastructure. Base stands out from its competitors with its Coinbase connection, which allows millions of users and institutions easy access to DeFi.

The Base blockchain officially launched at the beginning of August 2023. At the time of writing, it has been open to everyone for about two weeks. Base’s total liquidity (TVL) has risen to over $120 million, making it the 12th largest blockchain in the DeFi market. It’s only a matter of time before Base reaches the top ten.

Update on 3rd of March 2024: The popularity of Base has grown significantly in the first quarter of 2024.

Antti Hyppänen

Antti Hyppänen is the founder and editor-in-chief of AboutBitcoin.io. Antti has written articles about cryptos since 2017. He follows the crypto market every day of the year and is responsible for the daily operations of AboutBitcoin. Antti is not a maximalist regarding any cryptocurrency but looks at the industry objectively. Antti’s investment profile is “buy & hold,” i.e., he does not trade or use leverage. His crypto portfolio consists of mainly Bitcoin and Ethereum. Antti also follows macroeconomic events. In addition to cryptos, his interests include gold, silver, and the US stock market.

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