Once again, the digital economy was caught off guard when Amazon Web Services suffered its second major outage of the year on October 20, crippling exchange platforms like Coinbase and Robinhood and analytics service Coinmarketcap. It was followed by another, smaller outage just 10 days later.
According to Amazon’s initial report, the October 20 outage was caused by a malfunction affecting one of its internal subsystems that manages its domain name service, leading to connectivity issues in multiple services. It was due to a faulty update and ended up taking out Amazon’s critical US-East-1 region. This is a massive hub of servers that powers many of the country’s top internet services. For two hours, several trading platforms, streaming services, payment providers and gaming networks were unavailable to users globally.
No doubt Amazon’s engineers were working overtime to try and fix the bug, and to the company’s credit, the vast majority of services that reported problems were back online within a few hours. But the incident once again highlights the dangers of relying on centralized infrastructure, coming just months after a similar outage in Amazon’s eu-nord-1 region. Going offline causes pain in virtually every business, but for the crypto industry, where billions of dollars in value per transaction are traded. hour, such events are unacceptable.
Incalculable losses for traders
Although it is quite rare for centralized cloud platforms like Amazon to go down, it does happen from time to time. And when it does, the impact is very often monumental, affecting millions, if not billions of people globally. Case in point, just six months earlier, Amazon suffered a similar outage, taking down two of the world’s largest crypto platforms – Binance and Kucoin – for several hours. Amazon is not alone in this either, as rival clouds such as Google and Microsoft Azure have themselves suffered crippling outages. In fact, Azure was down for several hours on October 29, with reports suggesting that it took several websites and online services offline.
The problem with centralized infrastructure is that it is centralized. The weakness of these platforms is that they introduce single points of failure due to the way they rely on critical components that, if taken offline, bring the entire system down. It can be as simple as something like a computer server or database that contains vital configuration settings, or a lonely network connection that lacks redundancy. These vulnerabilities exist in every cloud, and no matter how diligent operators are, they will always pose a risk.
Coinbase was among the first services to report problems in the wake of Amazon’s mishap, and it quickly stepped up to reassure its users that their money is safe. But this clarity does not address the underlying problems of frozen transactions and delayed market orders – which occur when systems go offline without any warning. The longer the delay, the more the price of an asset can move, meaning the trader cannot take advantage of this. They may even lose money if the price of an asset falls shortly after entering a position and they are unable to sell.
Although it is impossible to calculate the exact effect, it is likely that the paralysis inflicted on traders has caused them pain and financial loss.
It’s time to decentralize
One possible way to prevent this is for crypto exchanges to at least partially shift to a more robust, decentralized infrastructure that eliminates these single points of failure. By operating some key modules of the trading system on a distributed network of servers, exchanges will virtually eliminate the potential for such disasters.
For an industry that prides itself on decentralization and constantly extols its benefits, it feels like hypocrisy to be so dependent on vulnerable centralized cloud platforms for their own infrastructure. While blockchain networks are distributed across many hundreds of nodes, very few exchange platforms can say the same, instead choosing to host their entire infrastructure with some cloud provider.
Fortunately, Monday’s outage wasn’t quite as severe as previous incidents have been, as Amazon had most services back up and running within a few hours, but nonetheless, it should serve as a wakeup call for the crypto industry to get its act together. Decentralized cloud infrastructure still has nascent difficulties around latency, network coordination and scalability, but it is rapidly maturing to support at least a hybrid cloud strategy. By distributing their data and systems across an expansive network, exchanges can become virtually immune to the total blackouts caused by an outage of this nature.
Centralized clouds will always have their place because of their massive scale, high performance, enterprise-grade security, and the specialized services they offer that decentralized alternatives can’t match. They will likely remain the backbone of the Internet for many years to come, but they will never be able to replicate the resilience of decentralized alternatives. With crypto exchanges accounting for billions of dollars of client funds in a market where every second counts, they need to step up and make sure this episode doesn’t happen again.
