Germany's Hetzner anti-crypto policy sounds alarm bells for Ethereum's future

Just as the Ethereum ecosystem enters the final stages of its much-anticipated merge upgrade, German cloud service provider Hetzner has suddenly reiterated its opposition to allowing mining operations based on both Proof of Stake (PoS) and Proof of Work.

Hetzner is a centralized private cloud provider. Recently, the company's official social account responded to the issue of encryption node licensing and stated that its terms of service do not allow Hetzner products to be used for any mining-related applications, even remotely related applications, including Ethereum. Hetzner said that it is aware that there are many Ethereum users and has been discussing internally how to best solve this problem. However, the Ethereum community sees this statement as a threat to the ecosystem because Hetzner's cloud service hosts nearly 16% of Ethereum nodes, as shown below:

Above: Ethereum mainnet data, source: ethernodes.org

In the cryptocurrency space, reliance on centralized service providers has long been viewed as a bad idea — and for good reason. The crypto community has reacted strongly after Hetzner clarified the issues and legal implications of using its services for crypto activities, as Hetzner said its products would not be allowed to be used for any mining-related applications, even remotely related, including Ethereum. The company also said that restrictions would extend to areas such as node operation, mining and yield farming, blockchain data storage, and transactions.

Hetzner acknowledged that its services have been widely used to support the Ethereum blockchain, but revealed that it has been discussing internally how to best address this issue. In fact, Hetzner clarified on social media that if a user stores a program or code without using it and does not have any external communication, then for now, this situation does not fall within the scope of its terms of service. At the same time, they also stated that if users or any other potential customers are unsure whether their use case will violate Hetzner's terms of service, they need to contact them as soon as possible.

Frankly speaking, the latest attitude of cloud provider Hetzner has indeed made the crypto community realize that centralized entities still have a huge impact on the booming crypto ecosystem. Recently, according to the cryptocurrency analysis platform Messari, most of the 4,653 active Ethereum (ETH) nodes are occupied by centralized network providers such as Amazon Web Services (AWS), of which more than 50% are from AWS, more than 15% are from Hetzner, and 4.1% are from OVH. Messari stated in a report in December 2020 that the high cost of running node infrastructure may make Ethereum more vulnerable to attacks. In addition, according to Ethernode data, nodes are most geographically concentrated in the United States (46.4%) and Germany (13.4%), so government intervention in these two countries may seriously affect the decentralization of Ethereum nodes.

In fact, Ethereum has already begun trying to solve the problem of relying on centralized cloud hosting, and Ethereum Foundation researcher Danny Ryan recently stated that all types of participants have the same advantages in terms of access to capital. In proof of work, the capital required is highly specialized machine components such as ASICs or GPUs, but people can find ways to avoid centralization problems and not let a single operator control certain key thresholds. The upcoming proof of stake upgrade is undoubtedly a solution, because compared to proof of work, decentralization may be improved.

Part of this article is compiled from cointelegraph