Is Ethereum’s Reliance On Centralized Servers Problematic? Why The Trend Is Concerning By Benzinga
© Reuters Is Ethereum’s Reliance On Centralized Servers Problematic? Why The Trend Is Concerning
Despite Bitcoin’s (CRYPTO: BTC) popularity as the world’s most popular cryptocurrency and one having the highest market capitalization, (CRYPTO: ETH) is far more critical to the ongoing development of the Web3 ecosystem.
Ever since smart contracts started gaining traction for converting traditional contracts into their digital equivalents, the Ethereum Network has been the preferred choice for developers and entrepreneurs creating decentralized applications (dApps) and more specifically decentralized finance (DeFi) applications.
However, crypto analytics platform Messari revealed that more than two-thirds of the Ethereum blockchain’s active nodes are being hosted on centralized servers. Now, the crypto world stands divided on its implications for the thousands of crypto and blockchain start-ups that rely on arguably the world’s largest blockchain network.
According to the latest data, 66.1% of all active nodes are hosted on third-party servers. More than 54% of them rely on Amazon Web Services, part of Amazon.com Inc. (NASDAQ: NASDAQ:).
Other cloud computing service providers include:
- Hetzner Online GmbH (10.58%)
- Google (NASDAQ:) Cloud (6.91%)
- OVH SAS (3.39%)
- Oracle (NYSE:) Cloud (3.35%)
Together, with AWS, they host more than 50% of all Ethereum nodes responsible for handling the network’s large transactional load.
While there are 15 other such centralized cloud service providers that cater to an additional 15% of Ethereum’s nodes, they remain far less important to the functioning of the Ethereum network, with admittedly negligible risk in the event of them shutting down.
For a truly decentralized blockchain network like Ethereum that has only recently made a landmark shift in its consensus mechanism, the reliance on cloud servers does put the network at the mercy of these providers and merits the question: Can Ethereum claim complete decentralization when more than half of its nodes are hosted using cloud computing services?
Blockchain networks and cryptocurrencies are being touted as the future of transacting due to the transfer of power and decision-making from centralized entities to a wide network of individuals that are governed through the community.
Ethereum, , , and many other blockchains continue to make all efforts to ensure that they provide trustless and tamper-proof transactions through their protocols. But by allowing their nodes to function over cloud servers belonging to behemoths like Amazon, Google, Oracle, and other Web2 companies, they all stand the risk of facing a central point of failure in the event that one or all of these service providers refuse to provide service to their nodes.
The chances of such an event happening are slim, but it cannot be completely ruled out since these companies do not enjoy a spotless reputation due to ruthless business practices that they have employed in the past, only to gain a larger share of the marketplace or simply to dominate it.
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Can Ethereum Handle A Mass Node shutdown?
Blockchain networks like Ethereum are not susceptible to a single point of failure (SPOF) due to their architecture. But they do have complete reliance on nodes for validating transactions and depend on at least 51% of them working without any malicious intent.
So while the potential refusal of AWS to service Ethereum nodes could severely cripple the entire network, the Ethereum network’s popularity amongst miners and its transition to a Proof-of-Stake (PoS) consensus model with the latest Merge ensures that it can recover its network’s transaction capability swiftly.
In fact, PoS blockchains are much better equipped to thwart any such closures than Proof-of-Work (PoW) blockchains, explaining why an increasing number of PoW blockchains are planning or contemplating switching to a PoS model.
So, dependence on centralized cloud-based hosting services may not be ideal for networks like Ethereum. Still, there does not seem to be enough evidence to suggest that the network’s decentralization or its functionality is at a major risk because of the same.
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