The struggle for decentralization has been a long-standing war in the world of smart contracts and governance layers for the crypto ecosystem.
But added to this mix is another issue, the ban on mining by a data giant. Hetzner is Ethereum’s second largest hosting provider. It has come forward t say that no crypto miners would be able to use their server farms either to support the blockchain network or anything else.
“Using our products for an application related to mining, even remotely related, is not permitted,” – Hetzner has said.
No Proof of Work or Proof of Stake
Many would mistake this news as pointing to the ban on Proof-of-Work consensus due to energy concerns, but Proof-of-Stake, too, has come under this prohibition.
“Even if you run just one node, we consider it a violation of our (terms of service).”
Is Blockchain Truly Decentralized?
Hetzner’s statements have spread a plague of doubt about the very nature of blockchain – is it really decentralized? This question is right as it sheds light on the fact that centralized powers such as Hetzner, a 25-year-old server company, and one of the biggest data center operators in Europe, can pull the plug on the network whenever they want to.
Note that currently, Hetzner is responsible for maintaining hundreds of thousands of servers in Germany, Helsinki, Virginia, and the United States of America.
The Ethereum community is in shambles after this announcement, as now they have an additional risk to face. And considering this announcement comes as we get nearer to the Merge upgrade, it rings several alarm bells.
What is Computer Counterparty Risk?
Computer counterparty risk is prevalent all across Layer-1 of Ethereum architecture since they rely on third-party computers to secure the nodes on the public cloud.
It necessarily means that it is the administrators of these third-party computers who necessarily own the network. Hetzner’s recent pullback from Ethereum has shown us that computer counterparty risk is a major issue with Web 3.
Web 3 is a generation of the internet era where portions of the internet are owned not by centralized entities but by the users. However, centralized bodies pose a computer counterparty risk that can threaten that ownership and, by extension, the whole philosophy or Web 3.
“It is a major issue in Web3 except only a few of us really understand it”, says Chris McCoy, the co-creator of STORE, a cloud computing service provider, a crypto DAO project governed by tokens.
14.3% of the Ethereum Nodes Operated by Hetzner
Maggie Love, the Co-Founder of W3Cloud, a data centers building company, shares a screenshot showing the node distribution chart for Ethereum. It is revealed that over 14.3% of those nodes are under Hetzner’s control. It used to be 16.9%.
Hetzner has been against blockchain and its offerings from the beginning. And it has a major portion of the Ethereum nodes that has irked many in the crypto community.
Ethereum’s dependency on Amazon.com has also been put into question, as it now stands at 55.4%.
The Problems with Decentralization have become an Urgent Priority
DeFi application teams have been dealing with decentralization issues since they have come under the government’s scrutiny. As a result, many applications had to be banned, like Tornado, which anonymizes transactions and has been called a money launderer.
It is not just Ethereum
It is not just Ethereum that’s facing this critical issue with the centralization of the blockchain. Solana is another chain that has been reeling under the same pressure since 34% of its validators have Hetzner accounts.
Hetzner is also the leading hosting service provider for Bitcoin miners, supporting 6% of the nodes.
DAO devs are still Onboard Hetzner
Hetzner’s recent stance has surprised anyone, considering the sheer number of blockchain nodes operating on it. However, DAO devs like Jacob Gadikian of Notional DAO are long-time Hetzner fans.
“You can’t get that kind of product and service from anywhere else.”, he said.
Rising Calls for Decentralization
Hetzner’s latest announcement has added weight to rising calls for decentralization. Blockchains should work perpetually within an ecosystem where there is no need to “trust” one node to do its job. And reliance on centralized bodies undermines that.
That said, these public cloud operators have the capital and the resources to power the blockchain network. So, to get to that truly trustless ecosystem, node operations have to become economically viable.
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