Once again, the digital economy was caught off guard when Amazon Web Services suffered its second major outage this year on October 20, crippling exchanges like Coinbase and Robinhood as well as analytics service Coinmarketcap. It was followed by a second, more minor outage ten 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 across multiple services. This was the result of a faulty update and ended up removing the US-East-1 critical region from Amazon. It’s a massive server hub that powers many of the country’s best internet services. For two hours, many trading platforms, streaming services, payment providers and gaming networks were inaccessible to users around the world.
There’s no doubt that Amazon’s engineers worked overtime to try to resolve the outage, and it’s to the company’s credit that the vast majority of services that reported issues were back online within 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-North-1 region. Going offline causes difficulties in almost every business, but for the crypto industry, where billions of dollars of value are exchanged every hour, such events are unacceptable.
Incalculable losses for traders
Although it’s quite rare for centralized cloud platforms like Amazon to go down, it does happen from time to time. And when that happens, the impact is very often monumental, affecting millions or even billions of people around the world. As an example, just six months earlier, Amazon suffered a similar disruption, taking down two of the world’s largest crypto platforms – Binance and Kucoin – for several hours. Amazon isn’t alone in this either, as competing clouds like Google and Microsoft Azure have suffered crippling outages of their own. In fact, Azure was down for several hours on October 29, with reports suggesting that it had taken many 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, cause the entire system to crash. This could be as simple as a computer server or database containing essential configuration settings, or an isolated network connection lacking redundancy. These vulnerabilities exist in every cloud, and no matter how diligent operators are, they will always pose a risk.
Coinbase was one of the first services to report issues following the Amazon crash, and it quickly responded to reassure its users that their funds were safe. But this clarity does not address the underlying issues of frozen trades and delayed market orders, which occur when systems go offline without any warning. The longer the time frame, the more the price of an asset can move, meaning the trader cannot profit. They can even lose money if the price of an asset drops shortly after taking a position and they are unable to sell it.
Although it is impossible to calculate the exact impact, it is likely that the paralysis inflicted on traders caused them suffering and financial losses.
It’s time to decentralize
One possible way to avoid this is for crypto exchanges to at least partially move to a more resilient decentralized infrastructure that eliminates these single points of failure. By operating certain key modules of the trading system on a distributed network of servers, exchanges will virtually eliminate the potential for such calamities.
For an industry that prides itself on decentralization and constantly touts its benefits, being so dependent on centralized and vulnerable cloud platforms for its own infrastructure is hypocrisy. While blockchain networks are spread across several hundred nodes, very few exchanges can say the same, choosing instead to host their entire infrastructure on one or another cloud provider.
Fortunately, Monday’s outage was not as severe as previous incidents, as Amazon restored most services within hours, but it should still serve as a wake-up call for the crypto industry to get its act together. Decentralized cloud infrastructure still has teething issues in terms of latency, network coordination, and scalability, but it is quickly maturing to support at least a hybrid cloud strategy. By distributing their data and systems across a vast network, exchanges can become virtually immune to total outages caused by an outage of this type.
Centralized clouds will always have their place because of their immense scale, high performance, enterprise-grade security, and the specialized services they offer, which decentralized alternatives cannot match. They will likely remain the backbone of the Internet for many years, but they will never be able to replicate the resilience of decentralized alternatives. As crypto exchanges command billions of dollars of customer funds in a market where every second counts, they need to step up their efforts and ensure this episode never happens again.
