A lively debate on Reddit Friday resurfaced the discussion of whether the computing infrastructure built on top of Ethereum is too centralized. According string data, approximately 32% of all Ethereum nodes are running on Amazon AWS servers. However, Amazon complaints the number should be closer to 25%.
Morgan Creek Co-Founder Antoine Pompliano heightened awareness of the issue in 2020 when he tweeted, “Jeff Bezos could shut down most… Ethereum-based DeFi applications just by shutting down AWS.”
Jeff Bezos could shut down most of these Ethereum-based “DeFi” applications by simply shutting down AWS.
You are not decentralized if you launch servers with Uncle Jeff!
— Pump 🌪 (@APompliano) October 7, 2020
Since 2020, not much has changed regarding the improvement of node decentralization within Ethereum. However, Pomp’s tweet isn’t entirely accurate.
Centralization of Ethereum
The image below shows the percentage of hosted Ethereum nodes running on AWS. At first glance, this seems very concerning because it goes against the narrative of decentralization in Ethereum.
Yet, the graph ignores nodes running on private machines instead of cloud-hosted servers. Hosting service providers facilitate approximately 67% of all nodes, and 29% are located in residential environments.
Interestingly, a statistic that is not commonly analyzed is that over 50% of residential nodes traverse a handful of US-Based Internet Providers. Therefore, Verizon, Comcast, Spectrum, and AT&T account for 51% of unhosted Ethereum nodes.
Therefore, Amazon, Verizon, AT&T, Spectrum, and Comcast facilitate about 47% of all nodes in the Ethereum network. This percentage corresponds to the total distribution of Ethereum across the United States. The United States operates almost 5 times more nodes than other countries; the second highest in Germany at 11%.
At 47%, this is precariously close to the oft-quoted magic number of 51% required to bring down a network. If a malicious actor gained access to the nodes through malicious means in an attack involving these five US companies, they would be able to cause damage to the network.
However, as Dankrad Fried, a researcher at the Ethereum Foundation, a 51% attack does not give an attacker absolute control. They can still cause serious problems;
“They can stop you from using the channel…[and] reverse the chain, i.e. undo a certain number of blocks and change the order of the transactions they contain.
A 51% attack cannot take coins from wallets or mint new coins, but canceling transactions can lead to double spending, which is a significant concern.
Will proof of stake solve the problem?
The Ethereum Beacon chain merger is the final step in the move to proof-of-stake for the network. According to Documentation, the event should lead to a more decentralized ecosystem. There are over 400K validators are already running on Ethereum, each staking about 32 Ethereum.
Three pools form over 50% of all ETH staked on the Beacon chain; Coinbase, Lido and Kraken. A similar risk can be attributed to these pools, as participants delegate ETH to the pools to remove the at least 32 ETH to “unlock a set of validation keys”. Pooling is not natively available on-chain, which has led to staking-as-a-service protocols to help meet the needs of smaller investors.
Amazon AWS in Ethereum
In 2021, Amazon launched Ethereum on its Blockchain managed by Amazon service to allow users to activate an Ethereum node in minutes. The familiarity of AWS and its existing integration into many internet processes has made it a semi-frictionless experience for developers.
A node is an integral part of any dApp, and the desire for it to be reliable, secure, and robust is a top priority for any project. Amazon AWS has earned the trust and respect of the world’s largest Web 2 companies, and is now looking to establish similar Web 3 real estate.
The percentage of hosted nodes running on Amazon AWS has decreased by approximately 3% since 2020, but it still retains a large share with little competition. Coming web3 companies like Alchemy, Ankr and others have a node-as-a-service offering that could theoretically compete with Amazon.
However, many of these services also use Amazon AWS, which reduces their impact on decentralization. Companies such as Gateway.fm are looking to come up with a bare metal server infrastructure to circumvent the AWS problem but are in the early stages of development.
There is no inherent risk to the viability of the Ethereum blockchain in using AWS. However, it creates a threat if the centralized entities are attacked to distribute the network and cause severe disruption.