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What Are Bitcoin Nodes and Why Do We Need Them?

(@danielcawrey) | Published on May 9, 2014 at 11:12 BST

It's well known that bitcoin is designed as a decentralized peer-to-peer (P2P) network. However, what's often lost in translation is the sheer amount of machinery that is needed to maintain this global infrastructure.

For example, in order to validate and relay transactions, bitcoin requires more than a network of miners processing transactions, it must broadcast messages across a network using 'nodes'. This is the first step in the transaction process that results in a block confirmation.

To function to its full potential, the bitcoin network must not only provide an avenue for transactions, but also remain secure. By using a number of randomly selected nodes, the network can reduce the problem of double spending – when a user attempts to spend the same digital token twice.

However, bitcoin doesn't just need nodes, it requires lots of fully functioning nodes – nodes that have the bitcoin core client on a machine instance with the complete block chain. The more nodes there are, the more secure the network is.

This is one of the reasons there is a plan to put bitcoin nodes in space, and that the plan has important implications for bitcoin.

The problem is, the number of nodes on the network is dropping, and core developers believe it may continue to do so.

Waning support

Looking at a 60-day chart of bitcoin nodes shows that the number has gone down significantly. It went from 10,000 reachable nodes in early March to below 8,000 at the beginning of May.

Source: Bitnodes
Source: Bitnodes

What's interesting is that during a recent 24-hour period, the number of reachable nodes went down from 8,200 to 7,600 and back to 8,200 again. This suggests that a portion of users running nodes are turning off their machines at night, meaning that this contingent of nodes are being run on desktops or laptops.

Source: Bitnodes
Source: Bitnodes

Another issue is the geographic distribution of the nodes. The majority of reachable nodes are located in North America.

In Africa, where bitcoin could perhaps help people lacking access to financial resources more than anywhere else, there is a regional paucity of reachable nodes.

A map based on Bitnodes data. Source; Coinviz
A map based on Bitnodes data. Source: Coinviz

Lack of incentive

Unlike bitcoin mining, where participants are rewarded for confirming transactions, running a bitcoin node does not provide any incentive. The only benefit for someone to run a node is to help protect the network, and based on the Bitnodes data, the number of people interested in supporting the network with a full node is waning.

There could be a number of reasons for that.

For one thing, running a full node utilizes the resources of a machine for basically no monetary return. Plus, the collapse of Mt. Gox has likely left many people with less desire to support the digital currency.

Furthermore, the popularity of the bitcoin core client in China, where it was for a time immensely popular, has tapered off given the contentious regulatory environment there.

Centralization of mining

In terms of supporting the bitcoin network, it used to be a lot easier for the average user to participate. However, the advent of massive ASIC data centres has weakened the consensual nature of mining, and by extension providing nodes, for many people.

Ross McKelvie, lead engineer at bitcoin incubator Boost VC, believes that it will be larger operators with data centres like KnCMiner that will have to pick up the slack in the number of bitcoin nodes, reasoning:

"As bitcoin grows, so does the network and the computing power behind the scenes required to run it. The majority of bitcoiners won't be able to support their own nodes and will be taken over by companies like KnC."

KnCMiner is just an example of economics and logistics in the mining industry pushing bitcoin towards a more centralized future. McKelvie also believes that major technology companies that take interest in bitcoin will have to put their computing resources behind the digital currency:

"I wouldn't be surprised if we see large tech companies like Google and Amazon throwing resources at bitcoin as they adopt the currency."

Feedback from nodes

As part of the bitcoin core developer team, Mike Hearn sees the issue of nodes dropping from 10,000 down to under 7,000 as a significant problem. To Hearn, the core of the issue is disinterest in both expending computing resources and electricity toward something that may have diminishing value.

On the bitcoin developer mailing list, Hearn has proposed added functionality that would allow communications between nodes and the developers to better understand why so many are dropping out.

Hearn also wants to exclude consumer wallets installed on laptops and desktops from the network as well.

This is because their number will continue to decline no matter what – and they appear to only be working when users are awake during the day.

One of the reasons why lots of nodes are important is redundancy, according to Hearn:

"It makes [the bitcoin network] 'seem' bigger, more robust and more decentralised, because there are more people uniting to run it. So there's a psychological benefit."

Moving forward

Bitcoin core developer Jeff Garzik believes that community attention to the lack of nodes supporting the network is what the industry needs in order to boost numbers:

"I agree we need more full nodes. I've long been a proponent of such calls for more nodes."

However, such calls for voluntary support might not be enough motivation for people to do so, though, so, one logical idea that has been floated is to give nodes some sort of incentive.

However, that's probably not feasible right now: over the past six months, miners have been averaging a daily reward of 15.98 BTC per day, according to Blockchain.

Recent bitcoin prices would peg that value at around $7,040 per day for the entire network – and the growth in transaction fees has been incredibly flat over the past six months. As a result, miners would likely be reluctant to concede any revenue to bitcoin nodes, which don't require pricey ASIC hardware to run.

Transaction fees on the network for past six months. Source:
Transaction fees on the network for past six months. Source: Blockchain

Members of the bitcoin community seem to be losing interest in hosting full nodes. And it's something to pay attention to, because over time it might mean that the major companies in the industry may have to pick up the slack.

If larger players are taking up the role of supporting the network as full nodes, though, it continues to lessen the amount of decentralization the network has at an infrastructure level.

This is all down to circumstances surrounding bitcoin sentiment – the rise of ASICs, the selloffs in China and complete collapse of Mt. Gox – plus little in the way of incentives for someone to run a node.

Connections image via Shutterstock

Mike HearnNodesRoss McKelvieTechnology

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