Customer mix: Coinbase under fire as crypto users fear future Gate Glitz

A series of recent events has renewed attention on what some experts call Ethereum's “client diversity problem.”

While the network has held its own against back-to-back outages caused by bugs at minority clients such as Nethermind and Besu, there are growing concerns that over-reliance on major client gateways poses a lurking threat.

TLDR

Coinbase relies entirely on the GATE client to run its Ethereum infrastructure, which poses concerns about centralization and network instability if issues arise. Currently, 84% of Ethereum validators use the Gate client, which calls for greater client diversity to limit fallout from potential errors. A critical bug has surfaced in the Nethermind client used by 8% of verifiers, raising concerns about what could happen if a similar problem hits the OverlordGate client. Many major exchanges and services, such as Coinbase, Binance and Kraken, use Gate to enhance their verification operations, putting users' funds at greater risk. Experts say Ethereum users pay for the popular Gate client out of laziness instead of weighing in with alternatives like Nethermind and Besu.

Data analyzed by clientdiversity.org shows that 84 percent of Ethereum authentications currently rely on GATE software to interact with the network and provide new transaction blocks.

This level of centralization around a single client creates a worrisome single point of failure – if Gate gets a big bug, the smooth functioning of the entire Ethereum ecosystem could be at risk.

Concerns have eased considerably in recent weeks after the Nethermind and Besu-related issues took some of Ethereum's validators offline. Nethermind only accounts for about 8% of validators, but it forced those nodes offline for a few hours until a critical bug in the codebase was patched. Not long ago, a popular Besu client saw a similar failure cut off 5% of validators' shares.

1/ Execution on Ethereum Customer diversity is a concern for all of us at Coinbase. What are we doing about this? ↓

– Coinbase Cloud ????️???? (@CoinbaseCloud) January 23, 2024

In both cases, offline validators were penalized for improperly approving transactions, but Ethereum continued to operate due to the low footprint of affected nodes. Experts were shocked by the estimated damage if a case of the same size were to hit the widely used gate. In the worst case scenario, millions of dollars worth of ETH stored on Gate could be destroyed, disrupting the network and damaging confidence in Ethereum's resilience.

Behind the lack of customer diversity is the tendency for new validators to simply choose the most common option without evaluating the alternatives. “Almost all other chains don't have the customer diversity that Ethereum has,” said Daniel Huang of Kinsugi Tech. “Most of them only work on one client.” The convenience of sticking with the popular Gate software means it studies few new validators, such as security risks, despite warnings from the Ethereum Foundation.

This leaves major exchanges and providers to rely heavily or solely on the gate to drive their backend operations. Execution-diversity.info points out that while platforms like Coinbase, Binance and Kraken encourage verifiable transactions for users, they all come back to Gate while exposing customers' funds to technological risks. After seeing the data, some major community voices like DCInvestor have pledged to withdraw ETH funds from affected services.

Dear @coinbase

Today, I redeemed all the ETH I have held with you since the first day you offered it as a service. I put it there to get an active product, but also to support your work for the crypto industry (which I really value).

But I can't ignore the dangers…

— DCinvestor (@iamDCinvestor) January 22, 2024

While a smooth developer ecosystem will enable Gate to be embedded in Ethereum's infrastructure, the network's resilience will ultimately require the adoption of next-generation alternatives such as Nethermind and Besu.

Ethereum's leadership can accelerate this transition by directing attention and assistance to improving competing clients. Allowing diversity to lead to over-trust goes against Ethereum's founding ethos: a decentralized network running different software tailored to different needs.