Analyst: Coinbase Should Prioritize Insurance Funds Over Ether Customer Diversity

Crypto analyst Adam Cochran urges Coinbase, the largest cryptocurrency exchange in the United States, to focus on creating an insurance fund for its users instead of focusing on diversifying its ethereum client infrastructure.

Most importantly, Coinbase should create an insurance fund

In an article posted on the X platform, Cochran argued that the exchange’s current handling of ethereum client diversity is “insufficient.” Instead, the analyst recommended that Coinbase focus on mitigating the risks associated with potential “absolute majority” failures on Ether.

Ether price is trending downward on daily charts| Source: ETHUSDT on Coinbase, TradingView

Ether is a leading smart contract platform that allows developers to deploy smart contracts that support applications, some of which have a total locked-in value (TVL) in the billions of dollars. However, the main node operator in the Ether backend relies on the validator client Geth.

Data shows that more than 75% of all node operators use this client. Through this open-source software, Ether is kept up to date, users can access funds, and more. There are other options besides Geth, including Besu and Nethermind.cryptomining

The analyst noted that a “majority” failure, where most Ether nodes go down at the same time, could lead to significant disruption and loss for Coinbase users. As the analyst noted, a “majority” failure is the possibility that if Geth fails, it could bring network operations to a halt or even lead to a split, a risk that Cochran is focusing on addressing by creating an insurance fund or allowing users to use alternative Ether clients.

The insurance fund would allow Coinbase to compensate users in this event. Coinbase, the world’s largest cryptocurrency exchange, has already set up an insurance fund to compensate users in the event of a hack. In addition to the fund, Cochran believes that giving users the option to choose to use an alternative client will give them more autonomy and allow them to take control of their security.Bitcoin Miner

Cochran Insurance Fund | Source.

Nethermind Crippled by Bug, 8% of Ether Node Operators Affected

The news comes a day after Coinbase said it was looking to diversify its Ether client, expanding its infrastructure away from Geth.

In a post on the exchange’s X platform, the exchange said it has been continuously evaluating the client since 2020 and plans to update the community on its next action plan by the end of February.

EtherExec Client Diversity | Source: clientdiversity.org

On January 21, Nethermind, an Ethernet client that accounts for roughly 8% of all node operators, was temporarily down due to an error. The network of Ether node operators penalized Nethermind due to the decreased reliability of their use.