Ethereum is set to migrate from its current Proof-of-Work (PoW) consensus mechanism to Proof-of-Stake (PoS) by mid-September, barring any changes. However, towards this significant milestone in Ethereum’s history, node centralization has become a somethingburger.
Pursuit for a hundred percent decentralization
Ingrained in the ethos of blockchain technology is decentralization. However, as some observers are keen to point out, Ethereum is concentrated in hosting among very few cloud service providers. Experts believe this could expose it to the risk of a central point of failure after the Merge since most of its active nodes are currently run-on centralized hosting solutions.
Maggie Love of Web3 infrastructure provider W3BCloud, recently opined that the centralized nature of nodes in the PoS chain could turn out to be a huge bother with no entity seemingly taking note of it at present. Crypto intelligence platform Messari shared in a Twitter post on August 18 that 69% of Ethereum nodes hosted in data centers are by three major cloud providers, with Amazon Web Services (AWS) serving more than half of all network nodes.
Geographical centralization leaves Ethereum exposed
A quick look at the numbers as merited by tracking platform Ethernodes reveals that AWS makes up for a significant 53.3%, an equivalent of 1442 hosted nodes. Hetzner Online GmbH hosts 455 nodes (16.0%), and Oracle Cloud’s are 121 nodes (4.3%). The sky-high capital required to set up and maintain node infrastructure pushes operators to opt for hosting. This may leave the Ethereum blockchain vulnerable, a concern that has persisted for a while now.
Ethernodes shows that there is a worry with Ethereum’s geographical decentralization. Two-thirds of all Ethereum nodes are located in the US, Germany, Singapore, and the UK.
Stateside leads with 2490 nodes, an equivalent of 44.56% of the total. This means the Ethereum network could be vulnerable should any of these governments act against the node operators – each of these jurisdictions has at least 200 nodes.
Ethereum Foundation’s rationale
Addressing the centralization concerns, Ethereum developer Péter Szilágyi has said that a viable way that would have worked to manage this hosting issue would require that operators embrace state rent, an idea that has faced harsh rejection in the past.
He still insisted that the only way ahead is to prune the database (sizing it down). He says that only then will home node operators survive into the future. Szilágyi noted that there are steps being taken to address the issue, and until its solved, operators should not be blamed for not wanting to natively maintain the massive node infrastructure.
The case for Ethereum Classic as a beneficiary of the Merge
Ethereum Classic could be headed for a huge upturn if the current metrics showing that network activity is shooting are anything to go by. The relegated Ethereum chain has gotten on the radar of many, with Ethereum Classic (ETC) holders, investors, traders, and miners alike tracking changes on this chain. The reason for this intensified close watch of the token is the upcoming Ethereum merge, which could potentially leave several ETH miners without an operating business.
This outcome will mean that miners have to find a new use for their ETH mining equipment, lest they end up with expensive rigs with no use on their hands. Currently, there is speculation, or rather an expectation, that at least some Ethereum miners (who control whose 20 to 50X more in hash rate) will migrate to Ethereum Classic, which is a proof of work chain.
Ethereum Classic developer Meowbits explained in a recent piece titled ‘Risk Evaluation of 51-Percent Attacks on Ethereum Classic’ that the chain “should expect its hash rate to be augmented by at least some of those abandoned miners.”
There is also a chance that the miners go into mining other PoW tokens such as Bitcoin but well, there aren’t many of those that are as lucrative. Some members of the Ethereum community have suggested they could fork a PoW chain off the Merge, so that’s yet another possibility. However, nothing is assured in terms of action towards this effect, meaning such a chain remains speculative.
The rising hash rate quells concerns of a 51% attack
A 51% attack is when a single individual/ entity gains control over more than 50% of a network, in which the control in question is the blockchain’s mining hash rate. Ethereum Classic has, on more than a single occasion in the past, been a victim of such an attack which already puts any onlookers on high alert over the network’s security. This adds to an already ill reputation since the network bore the pains of Ethereum’s DAO hack in 2016.
Nonetheless, data by Messari indicates that Ethereum Classic’s hash rate has been growing consistently, with the figure now nearly double what it was at mid-month. The chain is currently hovering around an ATH computational power of 43.76 H/s. The feat comes on the back of a steep ascent that started a fortnight ago.
Meowbits also noted that should the chain be the biggest beneficiary of the mining power that spins off Ethereum, then its risk levels would drop to the floor. This means that the spikes in network activity will do the network a lot of good as it means a higher hash rate and, therefore, overall improved chain security. As an effect, he posited, there should be a concurrent reflection of these changes on ETC prices. CoinMarketCap data shows that ETC is exchanging hands at $32.74, translating to a market capital of roughly $4.463 billion at writing.
To learn more visit our Investing in Ethereum and Investing in Ethereum Classic guides.
The post Concerns Around Ethereum’s Node Centralization and The Bullish Case for Ethereum Classic appeared first on Securities.io.
