Data giant shocks Ethereum with mining ban
Hetzner’s move sparks debate over decentralizing crypto infrastructure
Struggles to decentralize have long shaped the development of smart contracts and layers of governance in the crypto ecosystem.
Last week, something else struck: Hetzner, the second-largest hosting provider for Ethereum, clarified that crypto miners cannot use its server farms to support the blockchain network, or any another encryption company.
“Use of our products for any mining-related application, even remotely, is not permitted,” Hetzner said in a message to customers. He stated that proof-of-stake and proof-of-work activities are prohibited. “Even if you only run one node, we consider it a violation of our [terms of service].”
The development highlighted the power of a centralized player in blockchain infrastructure. Hetzner, a 25-year-old company based in Gunzenhausen, Germany, is one of the largest data center operators in Europe. It manages hundreds of thousands of servers in Germany, Helsinki and Virginia in the United States
The company’s decision highlighted an additional risk to the Ethereum community.
“There is significant IT counterparty risk in all [Layer 1s] where the majority of computers securing them run on any public cloud, Hetzner or not,” Chris McCoy, the co-creator of STORE, which aims to offer cloud computing services governed by tokenholders, told The Defiant. “IT counterparty risk is a major issue in Web3, except only a few of us really understand it.”
On August 26, Hetzner’s Twitter account referred the public to his Reddit post in response to a Tweeter by Maggie Love, co-founder of W3bCloud, a company that builds data centers to support what she calls “the web3 and blockchain economy.”
Love’s screenshot showed that 16.9% of Ethereum nodes are hosted on Hetzner’s servers, according to ethernodes.org. The number of Ethereum nodes hosted on Hetzner appears to have dropped by 15% nodes.
The fact that Ethereum nodes depend on a company that may be hostile to blockchain-enabling uses has long angered members of the DeFi community. Bitcoin promoter and influencer Anthony Pompliano was calling out Ethereum’s reliance on Amazon Web Services in 2020.
Still, the issue has become a pressing priority as the teams behind many DeFi applications ban addresses that may be subject to sanctions by the US Treasury Department’s Office of Foreign Assets Control. Earlier this month, the agency blacklisted Tornado Cash, the popular crypto “mixer” that anonymizes transactions, for allegedly laundering $7 billion worth of crypto.
Some members of the Ethereum community have downplayed the issue of centralization. GuillaumeBalletsaid a lead Ethereum developer as the the situation is “scary” it would be easy for Ethereum miners or stakers to switch to other machines if a cloud service provider halts operations.
Yet it’s not just Ethereum that’s being impacted by the centralization of what McCoy called “public clouds.”
According to a study published by STORE, nodes hosted on Hetzner account for 34% of validators on Solana.
Hetzner is also the leading provider of node hosting services for Bitcoin, with 6% of nodes, according to STORE. Between 20 and 25% of the nodes of the largest cryptocurrency in the world are based on public clouds.
Continuation of the debate
Jacob Gadikian works at Notional DAO, which provides validation services and uses Hetzner. Gadikian is generally a fan of Hetzner. “You can’t get the kind of product and service you get from them anywhere else,” he said.
Gadikian said he is working to reach out to Hetzner’s management team to clarify the companies’ position on the use of their solutions by nodes in blockchain networks.
Even so, the Hetzner episode is sure to spark a deeper debate about the push to decentralize crypto infrastructure. “Everything from blockchain history to infrastructure to consensus and governance requires complete trust minimization,” STORE’s McCoy said.