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Ignoring the cost of running the HSM (it's likely to be prohibitively expensive for most use cases), is it theoretically possible to run your baking node fully in the cloud using a cloud provided HSM such as that provided by Amazon [1].

Specifically do the tezos command line tools support such a setup in a similar fashion to how they work with Ledger.

[1] https://aws.amazon.com/cloudhsm/

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Yes, I believe this is how the foundation bakers currently work - here's a link to a public github repo with relevant code: https://github.com/tacoinfra/remote-signer

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yeah, but foundation bakers were missing a lot of endorsements due to the t3 address types, apparently that was fixed in this upgrade v8.1. https://tzstats.com/tz3RDC3Jdn4j15J7bBHZd29EUee9gVB1CxD9

As you can see here they have been missing a lot of blocks and endorsements

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