The Importance of Decentralization and the Challenges Facing Ethereum

Recently, an event regarding retail investors fighting against short-selling institutions on a certain U.S. stock has attracted widespread attention. The development of this event has led people to refocus on the importance of Decentralization. Although Ethereum is a highly decentralized platform, it still has some centralized risks that we need to pay attention to.

Thought-Provoking Stock Market Events

Recently, a group of retail investors engaged in a game against Wall Street short-selling institutions through collective action on a certain stock. These retail investors drove the price of a stock, which was on the verge of being delisted, from $3 to over $300 by buying it in large quantities, causing the short-selling institutions to suffer billions of dollars in losses.

However, just as retail investors were about to celebrate their victory, a series of measures unfavorable to them followed one after another. Multiple trading platforms began to restrict the buying operations of related stocks, only allowing selling. Some brokers raised margin requirements, and even server failures occurred. Ultimately, the servers of the communication forums commonly used by retail investors were shut down, causing them to lose an important channel for information exchange.

This event highlights the doubts about the reliability of third parties and the necessity to reevaluate the concept of "Decentralization".

The Centralization Risks of Ethereum

Ethereum, as the world's second-largest Decentralization protocol, offers vast possibilities for the open financial market. From early crowdfunding to later Decentralized Autonomous Organizations, Decentralized Finance, and Non-Fungible Tokens, many innovations are built on the Ethereum infrastructure.

However, the complexity of Ethereum also brings some challenges. Its high requirements for storage make it difficult to run full nodes to validate the ledger. This leads most developers to rely on third-party servers, such as Infura.

Infura processes about 13 billion code requests daily, providing developers with a way to connect to the Ethereum network without running a full node. However, Infura is operated by a single vendor and relies on servers from a large cloud service provider, which introduces two layers of centralization risk that could make Infura a potential single point of failure for the Ethereum network.

With the prosperous development of the Ethereum ecosystem and a market capitalization exceeding one trillion, coupled with the rise of Decentralization Finance, this issue has become more prominent. Currently, almost all decentralized applications using a certain well-known wallet actually rely on Infura, which may lead to a decrease in the number of full nodes supporting the network.

In addition, relying on Infura may also pose privacy risks. Running a full node allows users and developers to keep sensitive activities local, whereas through Infura, information such as the user's wallet address and IP location may be collected.

Insights and Reflections

The recent retail investor forum events and reflections on Ethereum node services have sounded the alarm for us. When market interests are significant enough and the effects of market games and regulatory controls are too strong, we must be fully prepared for the worst-case scenario.

This is a question that all decentralized protocols need to consider deeply, especially applications developed on Ethereum. We need to continuously explore how to reduce potential centralization risks while maintaining the advantages of decentralization, in order to ensure the healthy development of the entire ecosystem.