Despite Bitcoin’s BTC/USD popularity as the world’s most popular cryptocurrency and one having the highest market capitalization, Ethereum ETH/USD 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, with crypto analytics platform Messari revealing that more than two-thirds of the Ethereum blockchain’s active nodes are being hosted on centralized servers, with more than 50% of those being contributed by Amazon, there can be stark implications for the start-up ecosystem that relies on arguably the world’s largest blockchain network in case of a hostile takeover.
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. AMZN.
Other cloud computing service providers include:
- Hetzner Online GmbH (10.58%)
- Google Cloud (6.91%)
- OVH SAS (3.39%)
- Oracle 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?
Understanding the consternation with third-party cloud services
Before we delve into what the furor is over the reliance on cloud servers, it is important to understand that blockchain networks and cryptocurrencies are being touted as the future of transacting on the internet, largely because they transfer the power of decision-making from centralized entities to a wide network of individuals that are governed by the community.
While blockchains like Ethereum, Bitcoin, Solana, and others make constant efforts to provide trustless and tamper-proof transactions through their protocols, allowing their nodes to function over cloud servers belonging to behemoths like Amazon AMZN, Alphabet GOOGL, Oracle ORCL, and other Web2 companies put these networks at immense risks.
In the event that one or all of these service providers refuse to provide service to their nodes, these networks could face a central point of failure and risk being held to ransom by third-party cloud service providers.
While the chances of such an event happening are slim, it cannot be completely ruled out that a company like Amazon could force its terms or even buy out the network, especially when one considers their penchant for ruthless business practices 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.
Despite the many safeguards in place, the dependence on centralized cloud-based hosting services may not be ideal for networks like Ethereum and the risk of someone as powerful as Jeff Bezos forcibly taking control of blockchain protocols like Ethereum will continue to loom.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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