What is Base, Coinbase’s layer-2 network?

Key takeaways

• Developed by Coinbase, Base is an Ethereum layer-2 network designed to resolve the problem of scalability on Ethereum. By using optimistic rollups, Base reduces transaction costs and increases processing speed while still leveraging Ethereum’s security.
• Base was created to broaden the use of DeFi and make blockchain technology more accessible, aligning with Coinbase’s push for Web3 and DApp development.
• Base offers low fees, fast transactions, secure bridging and seamless integration with Coinbase services, making it ideal for DeFi, NFTs and gaming.
• Base faces competition from other layer-2 networks, such as Arbitrum and Polygon, and must address concerns around centralization, security and regulatory compliance.

Before the advent of layer-2 (L2) networks on Ethereum, users struggling with high gas fees or slow transactions on the blockchain was the norm. Ethereum was like a busy highway during rush hour, where traffic is slow and it costs you a lot of gas to get anywhere. In Ethereum, gas refers to the fee you pay to perform a transaction.

Base is like a fast, new express lane built right next to the highway. It speeds up transactions and lowers costs while still leveraging Ethereum’s mainnet for security. 

This article explores what led to the creation of Base, how it works, how Ethereum and Base differ regarding transaction costs, various benefits of Base, risks and challenges of Base, how Base compares with other L2 networks, use cases of Base, and its future.

Who created Base and why?

Coinbase created Base, the Ethereum layer-2 network, with two clear objectives: to broaden the use of decentralized finance (DeFi) and increase the accessibility of blockchain technology. 

Like all blockchains, Ethereum faces the problem of scalability, meaning transactions could get sluggish. As a result, the cost of the transactions is prohibitively high; therefore, Coinbase decided to address this gap.

L2 solutions like Base play a key role in this scenario. These are scalable solutions that handle transactions off the Ethereum blockchain while utilizing Ethereum’s strong security framework to ensure the security of data. This strategy lowers expenses while accelerating transaction speed without compromising security.

Base is a part of Coinbase’s larger plan to promote Web3 and blockchain usage. This action is in line with Coinbase’s long-term objective of reducing the gap between decentralized applications (DApps) and traditional finance.

Coinbase launched Base with the goal of creating a platform that could support a variety of DApps, from DeFi to non-fungible token (NFT) marketplaces. It provides developers greater control, enabling them to create a more dynamic DeFi environment and, subsequently, setting up more engaging experiences for regular users. 

Did you know? The global blockchain technology market will have grown from $92 billion in 2021 to an estimated $1,431.54 billion ($1.431 trillion) by 2030.

How does Base work?

Using optimistic rollups, Base combines numerous transactions into one batch, which it then sends to the Ethereum mainnet. This mechanism enables Base to handle more transactions offchain, which speeds up processing and lowers the cost, boosting the scalability.

Optimism created the OP Stack, a framework that powers Base’s capabilities, including technological capabilities to manage high transaction volumes effectively. Base’s ability to integrate with other Ethereum L2 networks creates a shared infrastructure that is more scalable and efficient.

Base’s compatibility with other L2 networks on Ethereum facilitates the transfer of assets and data across platforms. Thanks to this interoperability, users and developers can migrate between different L2s with ease, strengthening Ethereum’s wider ecosystem.

What are Basenames?

Basenames are a fundamental onchain component that allows you to create your identity on Base by registering human-readable names for your wallet addresses. Fully onchain on Base, these names leverage the same technology as Ethereum Name Service (ENS) names. 

You can use these names to interact with onchain apps and send and receive transactions in the Base ecosystem, which includes base.org, Onchain Registry, Onchain Summer Pass and other Ethereum Virtual Machine (EVM) chains.

The cost of Basenames depends on name length. As of Oct. 15, 2024, the annual registration fees are as follows:

How to connect to Base from a crypto wallet

You can add Base as a custom network to any EVM-compatible wallet. This example uses MetaMask to explain the process:

• Step 1: On the MetaMask wallet dashboard, click the network dropdown in the top left corner. 

• Step 2: Click “Add network.”

• Step 3: Click “Add” next to “Base Mainnet.”

• Step 4: MetaMask will ask you to verify the network.

• Step 5: MetaMask will add the Base mainnet and ask whether you want to switch to it.

• Step 6: Once you click “Switch to Base Mainnet,” MetaMask will switch to the Base mainnet.

Transaction costs: How Ethereum and Base differ

Because of the different ways in which Ethereum and Base handle transactions, transaction fees in both networks are vastly different.

Transaction costs, also referred to as gas fees on Ethereum, can get very expensive on the Ethereum mainnet, particularly during network congestion. Gas prices may vary from $10 to $100+ for a basic transaction, such as transferring tokens onchain or swapping on a decentralized exchange (DEX). Gas fees are measured in gwei, the lowest denomination of Ether (ETH).

Base processes transactions offchain and finalizes them on Ethereum, significantly lowering fees, usually to a few cents. For instance, a swap via Base on a DEX might only cost $0.05 to $0.50, which is a significant discount from Ethereum’s mainnet costs.

Base is quite inexpensive for both developers and regular users.

Did you know? As of Sept. 25, 2024, Bitcoin (BTC) is the cryptocurrency with the largest market capitalization with $1,258.08 billion ($1.258 trillion). Ether (ETH) comes a distant second with $315.08 billion, while Tether’s USDt (USDT) is third with $119.49 billion.

What are other benefits of Base?

The benefits of Base for users and developers are as follows:

• Quick transactions: Optimistic rollups enable the quick execution of Base transactions, assuring seamless and rapid transfers.
• Secure bridging: Base offers a safe method of bridging assets between Ethereum and its network, ensuring the security of digital assets as they move across chains.
• Developer accessibility: Base facilitates the development and launch of DApps by providing tools, resources and advice to developers.
• Developer incentives: Base provides incentives as well to encourage developers to build innovative DApps inside its ecosystem.
• Seamless integration with Coinbase: Base easily interfaces with Coinbase’s exchanges and wallets, enabling users to access DApps and manage their assets through Coinbase services.
• Compatibility with the Ethereum Virtual Machine (EVM): Base’s compatibility with the Ethereum Virtual Machine (EVM) enables you to easily migrate your existing Ethereum DApps to Base.

Risks and challenges of Base

Base faces several risks and challenges:

• Competition with other layer-2 solutions: There are other L2 networks like Polygon and Arbitrum with their own set of advantages. The objectives of these L2 networks are more or less the same — to enhance scalability and reduce transaction costs — though the techniques used may be different. Base has to win the race against these L2 networks, proving to users that it is better than the competition.
• Security risks: While Ethereum has earned a reputation for security, vulnerabilities may emerge in the rollup process or convergence with other L2 networks. No system is 100% risk-free. As more developers join the network and the ecosystem expands, new vulnerabilities may emerge. 
• Centralization concerns: As Base is supported by Coinbase, some in the cryptocurrency community are concerned about centralization. Although Coinbase’s involvement brings in resources and confidence, Base may end up not getting decentralized. 
• Regulatory challenges: Like all crypto projects, Base will need to deal with compliance requirements as the regulatory framework evolves. It will have to walk a tightrope as it expands, balancing between innovation and regulatory requirements.

Did you know? In September 2024, Vitalik Buterin, co-founder of Ethereum, announced that networks must achieve “Stage 1” by the end of the year to be considered L2. The status of a network as an L2 determines whether the network depends on Ethereum for its security or whether it’s a separate network entirely, which may or may not be secure.

How does Base compare with Arbitrum, Optimism and Polygon?

Every Ethereum L2 solution has different features designed to address security, cost and scalability. Yet these solutions differ in terms of methodology, technology and ecosystem support. 

Below is a comparison of these L2 solutions, highlighting key aspects such as fees, security, decentralization and developer support to help users and developers make informed decisions

Use cases of Base

Base is designed to support DApps, making it a highly adaptable platform for a wide range of use cases. Below are some examples of how the Base network can be utilized:

• DeFi: Base’s high throughput and low transaction fees make it ideal for DeFi applications. DEXs, lending platforms and stablecoins benefit from its cost-efficient transactions. Notable DeFi protocols such as Uniswap, Aave and SushiSwap are integrated with Base.
• NFTs: Base offers a scalable platform for minting, buying and selling NFTs. Users can trade NFTs without incurring high fees or facing network congestion. OpenSea, an NFT marketplace, has integrated with Base. In December 2022, OpenSea had over 2.45 million registered users, but the number of active wallets declined by more than 25% in Q2 2023–Q3 2023.
• Gaming: With its high transactions per second (TPS), Base suits blockchain-based games that require frequent transactions. Games built on Base offer smooth, immersive experiences without the delays or high costs typical of layer-1 networks.
• Supply chain management: Base’s quick and affordable transactions make it suitable for tracking products in real-time, ensuring transparency and efficiency throughout the supply chain.

Base’s role in the future of Web3 and DeFi

Base is expected to play a big part in the shaping of Web3 and DeFi. The platform provides a user-friendly environment for users to engage with DeFi protocols, purchase and exchange NFTs, and participate in decentralized autonomous organizations (DAOs). 

Lower costs and quick transactions provide reasonable ground for developers and users to utilize Base. These capabilities facilitate user interaction with Web3 apps, which could lead to its growth in the DeFi industry.

Coinbase has been positioning Base as the preferred platform for developers to create DApps. Seamless interoperability with other L2 networks enables developers to overcome technical obstacles and focus on innovation. 

Base’s roadmap focuses on enhancing scalability, security and decentralization to address the blockchain trilemma. In the future, Base aims to increase network decentralization and explore advanced offchain scaling solutions for higher throughput without compromising security. 

This aligns with Vitalik Buterin’s vision for L2 networks, where the initial focus emphasizes improved scalability with some degree of centralization, while the ultimate goal is transitioning to a more decentralized system while keeping fees low.

Ultimately, the goal is to transform into a more decentralized system while keeping fees low. Base plans to achieve this by incorporating decentralized validators, zero-knowledge rollups or other privacy-preserving technologies.