Coinbase CEO Hints Base May Harvest Your KYC Information Anyway

Coinbase CEO Brian Armstrong suggested that the company’s new layer-2 blockchain network, Base, may require transaction monitoring and Anti-Money Laundering (AML) measures at launch. 

Coinbase’s Base Isn’t What You Think It Is

CEO Brian Armstrong emphasized that centralized firms monitor transactions and carry out AML checks to avoid money laundering issues. A decentralized solution should not require such controls and checks, though. 

Base is an Ethereum layer-2 network that provides a secure, low-cost, and developer-friendly platform for building decentralized apps. Coinbase unveiled Base on February 23 and is currently in the testnet phase. Although Coinbase has yet to provide a mainnet launch date, it is expected to launch in Q2 2023.

However, concerns have been raised over Coinbase’s latest layer-2 offering. A blog post released five days after Base was announced reveals that the infrastructure of layer-2 is quite centralized. It uses “sequencers,” nodes that construct and execute L2 blocks while transmitting users’ actions from L2 to L1. 

Coinbase, a licensed money transmitter, will be operating the sole sequencer for Base. That aspect affects whether Base would legally require Know Your Customer (KYC) requirements, making it the first-ever L2 to do so. It is not necessarily a good first-mover advantage to have.

Odd Lots @TheStalwart directly asked @coinbase CEO @brian_armstrong how CB will navigate KYC/AML obligations on @BuildOnBase.

Armstrong tap danced around an answer. In the last 10 seconds he hints there WILL be some sort of KYC at launch.

Wish Joe had pressed for more clarity. pic.twitter.com/Q4TBV5MbS0

— Chris Blec (@ChrisBlec) March 6, 2023

For now, Coinbase has not confirmed Base would be implementing KYC and AML measures. However, Armstrong suggested that Coinbase will monitor transaction in the early days. 

KYC And AML Solutions For L2?

He added that the centralized actors are the ones that are likely to have the most responsibility to avoid money laundering issues and having transaction monitoring programs.

It is worth noting that Coinbase’s move to develop this L2 network is seen as a “massive confidence vote” for Ethereum by the crypto community and Ethereum advocates. Base is being developed with the “OP Stack” used by Optimism, which will enable high-speed transactions on Ethereum.

In conclusion, Coinbase’s new layer-2 blockchain network may require transaction monitoring and AML checks at launch. Although Coinbase has yet to confirm or deny that, it seems plausible. That would make the whole solution far less appealing. 

The crypto community and Ethereum advocates see Base as a massive confidence vote for Ethereum. That is despite growing and rightful concerns over user privacy and data harvesting. 

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