Coinbase Global Inc (NASDAQ:COIN) is getting into the Ethereum Layer-2 game in partnership with Optimism, the Nasdaq-listed cryptocurrency exchange has announced.
Called Base, it marks the first time Coinbase has moved into developing blockchain solutions.
Ethereum Layer-2 protocols are designed to enhance Ethereum’s transaction speeds and throughput.
It’s a growing market, with around US$6.4bn in ether (ETH) locked into Layer-2 protocols, with Arbitrum accounting for half of this value alone.
Such is Arbitrum’s popularity that daily transactions on the platform recently exceeded Ethereum itself.
A new Base Ecosystem fund to invest in early-stage projects building on Base was also announced, in a clear sign that Coinbase sees the potential in Layer 2s.
Given the exchange’s dismal earnings over the past year, hopefully it turns out well.
Coinbase’s lofty ambitions are to onboard one billion or more users into the cryptoeconomy, though its track record in extending beyond its core brokerage and staking offerings isn’t great.
Its NFT marketplace is effectively dormant, having traded 11 bucks worth of NFTs in the latest 24-hour period.
Base will initially be centrally controlled by Coinbase, but “we are deeply committed to progressing towards full decentralisation over the years ahead”, the company stated.
An exact date for mainnet launch has yet to be disclosed.
What is Layer 2 in crypto?
The existence of Layer 2 implies the existence of Layer 1, which are blockchains as you probably know them: Ethereum, Cardano, Solana, Avalanche, Tezos and so on.
Layer-2 protocols can be thought of as secondary frameworks built on these existing Layer-1 blockchains, enhancing their transaction speeds and transaction throughput.
In basic terms, Layer 2s exist to make Layer 1s more efficient.
Layer 2s can do this in a variety of ways, usually by performing some functions ‘off-chain’ and only sending the essential parts of these functions to the Layer 1 to process.
Anyone wanting to get deeper in the technical weeds on how Layer 2s perform this should dig into the fascinating world of zero-knowledge proofs.
Bitcoin developers are making a Layer-2 solution for the world’s largest cryptocurrency called The Lightning Network.
Polygon co-founder recently told the Crypto Banter podcast that the future of the blockchain sector will consist of only Ethereum and its associated Layer-2 scaling solutions.
Polygon (MATIC), the world’s eighth-largest cryptocurrency by market capitalisation, is an Ethereum scaling solution, thought it works differently from Layer-2 protocols.