People interact daily with open source applications like MetaMask, Web3 Games, Metaverse, and DeFi protocols, but don’t often stop to think about what’s going on in the background to make it all work. If we think of Web3 as a new burgeoning city, node infrastructure providers are the underlying power grid that makes operations possible.
All DApps need to communicate with blockchains, and full nodes serve billions of requests from DApps to read and write data to blockchains every day. We need a huge infrastructure of nodes to keep up with the growing DApp ecosystems and meet all the demands. However, running nodes is time-consuming and capital-intensive, which is why DApp builders turn to vendors for remote access to nodes. There is a huge financial incentive for infrastructure providers to power as many of these Web3 ecosystems as possible, but who is winning this race so far?
The problem of centralization
The fastest way to provide reliable infrastructure to power DApp ecosystems is for centralized companies to set up a fleet of blockchain nodes, typically hosted in Amazon Web Services (AWS) data centers, and allow developers to access it from anywhere for a subscription. This is exactly what a few space players did, but it came at the cost of centralization. This is a major challenge for the Web3 economy, as it leaves the ecosystem vulnerable to attack and at the mercy of a few powerful players.
Consider that over 80% of Ethereum nodes are located in the US and Germany, and the three largest mining pools could come together to attack 51% of the network. In many ways, today’s blockchains are much more centralized than we would like, which stands in stark contrast to the philosophy originally laid out in Satoshi Nakamoto’s Bitcoin (BTC) white paper.
If the big node providers got along, Web3 would lose all the advantages it has over Web2, from censorship resistance to reliability, and be stuck with only its drawbacks, relatively high fees to low transaction throughput.
Not only that, but relying on centralized vendors also leaves the door open for outages. For example, an Infura outage actually forced crypto exchanges and wallets, like Coinbase Wallet, Binance, and MetaMask, to suspend Ethereum and ERC-20 token withdrawals because they couldn’t fully rely on their nodes.
It should also be noted that Amazon, which is the backbone of many of these centralized providers, has suffered a number of outages in the past, creating another layer of vulnerability. Ethereum’s Infura outage is not the only one. Most recently, Ethereum’s move to Ethereum 2.0 was delayed by a 7-hour outage due to the hardware failure of a single node on the network. This is a risk that truly decentralized networks need not worry about.
Decentralization is a key tenet of the Web3 economy, and centralized blockchain infrastructure threatens to undermine it. For example, Solana suffered multiple outages due to a lack of sufficient decentralized nodes that could handle traffic spikes. This is a common problem for blockchain protocols trying to scale.
Related: Scalability or stability? Solana network outages show that work is still needed
And it’s not just Solana. Many of the major blockchain protocols are struggling to find a way to scale and become more decentralized. In fact, while big blockchains like Ethereum and Bitcoin have stood firm in the war for decentralization, smaller blockchains have lost the battle, suffering 51% attacks from overly centralized node providers.
For example, on June 8, 2013, Feathercoin (FTC) suffered a 51% attack. This means that a single entity could control more than half of the total processing power of the FTC network. This allowed them to roll back confirmed transactions and even prevent new transactions from executing.
At the same time as the FTC attack, the website suffered a DDoS attack. This made it difficult for users to access information about the attack or try to withdraw their money from the network. Since then, the FTC has fallen into oblivion. Its price has dropped and it is no longer listed on major exchanges.
This historical centralization is due to the over-reliance on web2 cloud providers, such as AWS and Infura, which have until now been the main infrastructure providers for the web3 economy. But now, to avoid centralization and the proverbial “single point of failure” of blockchain, decentralized infrastructure providers are gaining ground. This is good news for the prospect that Web3 ecosystems remain healthy and decentralized.
Decentralized infrastructure offers better solutions
Fortunately, recent innovations are giving rise to a new breed of providers that are much more decentralized. These providers run nodes on-premises, or even in users’ homes, rather than relying on centralized cloud providers.
While centralized providers have a head start, decentralized providers are emerging as an extremely viable alternative. Their main advantage is that they cannot be taken down by a single point of failure and, in many cases, provide faster connections to global users. Additionally, decentralized node infrastructure providers are creating new economies where independent providers respond to data requests and earn rewards in their native tokens. This new type of provider is rapidly gaining market share, and could even eventually supplant the current Web3 infrastructure incumbents.
Related: Decentralization, DAO and current Web3 concerns
There are a number of different vendors in the space, such as Ankr, Flux, and QuickNode, vying for market share. This competitive environment is good for the Web3 economy because it drives innovation and lowers prices. It also ensures that providers are constantly striving to improve their services and provide the best possible experience for their customers.
More importantly, competition from decentralized infrastructures is driving further decentralization of the Web3 economy. This is a good thing, because it makes the economy more resistant to attack and censorship. The 51% of attacks from the past are expected to remain in the past, with infrastructure providers spread across different geographies.
Related: Web3 relies on the participatory economy, and that’s what’s missing — Participation
This competition between providers will be vital to maintaining a healthy and decentralized ecosystem.
Fulfilling the Promise of Web3
Web3’s promise is not just to build a better Internet, but to build a better world. Decentralized infrastructure providers are laying the foundation for a new Internet that is fairer, more secure, and censorship-resistant.
By maintaining the status quo, centralized hosting providers fail to deliver true innovation and are susceptible to censorship. Decentralized infrastructure providers, on the other hand, have an incentive to push the boundaries and provide the best possible service with a democratic structure, which ensures that they are more resistant to censorship and attacks.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Gregory Gopman is a tech entrepreneur working in the blockchain space, where he is marketing director at Ankr, and runs a blockchain consulting firm called Mewn that helps launch projects and increase their valuation. Greg has worked in startups for 15 years – 10 years with Silicon Valley tech companies and 5 years building crypto projects. He is best known for co-founding the Akash Network and AngelHack, and helping Kadena grow from $80 million to over $4 billion in 100 days.