Bitcoin Node Operators Should Be Incentivized to Promote Decentralization of Bitcoin Network

A look into how bitcoin mining works and how the users of BTC should be rewarded for running full bitcoin network nodes.

Bitcoin was created as a decentralized peer-to-peer currency with no central authority controlling the day-to-day operations. The digital currency was designed in a way that it won't require a centralized body to authenticate the transactions, as each transaction on the network come encrypted with a definite output, and miners on the network can only decrypt the transaction using computational power measured in the hash.

Each transaction on the network is registered on the public ledger available to everyone right from the genesis block, which makes the network transparent as well as harder to cheat. These transaction data is available to anyone in the form of Bitcoin nodes. Bitcoin nodes are basically a decentralized database that contains a copy of the Bitcoin ledger which has all the transactional data.

The Three Different Types of Nodes

These Bitcoin nodes play a very important role in keeping the network decentralized and more, the number of full nodes the more secure the network is. These nodes come in different forms and shape depending on the various needs and requirements, which include,

  • Full Nodes
  • Light Nodes
  • Miner Nodes

Full Nodes:

These nodes contain the history of the entire Bitcoin ledger, and each transaction on the network starting from the genesis block can be traced on a full node. As of today, there are a total of 9323 full Bitcoin nodes around the globe. These full nodes are responsible for ensuring security and decentralization of the network, thus more the number of these full nodes the more secure the network is against 51% and other hacking attacks.

Light Nodes:

Light nodes are a miniature version of the full node, where instead of containing the complete database of the whole network, it only contains the necessary information from the previous block like the hash input, the time of mining, and the unique identifying number to validate the blockchain. It performs the same task as the full node but without the complete database as it is connected to the full node.

Miner Nodes:

These nodes as the name suggest are responsible for adding the list of nodes that need to be mined next in the network. These nodes do not play any role in the validation of blocks and once the selected node is mined it is sent to a full node to validate.

However, there is no form of incentivization for running a node, and given how crucial of a role these nodes play for maintaining the decentralization on the network, there should be some form of incentivization to reward the node operators.

Running a Bitcoin node Is a Complex Task

Running a full Bitcoin node is a complex task that comes with certain costs in the form of initial hardware setup and monthly electricity charges. Setting up a full Bitcoin node is not an easy task either as it requires the user to have at least 200 GB of hard drive space as the current Bitcoin network data is estimated to be around 113 GB, 2gb of RAM and high internet upload speed of at least 400kb/s. One also needs to run the full node for a long period of time which can incur significant electricity bills.

Setting up a full Bitcoin node for a beginner could be a daunting task as it involves a lot of technical expertise which is another reason why operating full nodes should be incentivized. In order for Bitcoin to be universally accepted many processes need to be simplified including running full nodes. There has been certain progress in recent times where many new forms of plug-n-play and hardware nodes have arrived in the market.

With numerous enterprise-level mining farms coming up in recent years, there have been concerns over these mining farms creating a centralization in Bitcoin mining. Thus, in order to motivate people to keep running full nodes at their own cost, some form of incentivization is necessary, especially once all the Bitcoins are mined it would become even more vital to ensure the security of the network as miners won't be motivated enough to verify the transactions with partial transaction fees.

Decentralization vs Scalability

Bitcoin's full nodes ensure the network's decentralization, but at the same time, it also possesses a threat to the scalability of the network which has been a growing concern for the Bitcoin network for quite some time now. Every transaction on the network is run through the full network of nodes to ensure that they are valid and as the number of these nodes increases the confirmation time for each transaction would rise as well.

Viktor Radchenko, founder of Trust Wallet share similar beliefs that instead of promoting incentivization of full Bitcoin nodes, one should really focus on Miner nodes, as miners provide the necessary security needed for the network.

He said,

“I think incentivization of full nodes is a good idea, but then we should also understand that decentralization would come at a cost of scalability. I think to promote the use of mining nodes makes more sense as miners are responsible for ensuring security by verifying on-chain transactions.”

Conclusion

In recent years plug-and-play hardware nodes are making a serious case as they are easier to set up and use. But, taking the long term goal in mind, once all the bitcoins are mined, there won't be enough miners left to provide security to the network since transaction fees won't be a viable or profitable option for them to participate. Thus, in the long term keeping the scalability of the network in mind, some form of incentivization would be necessary to keep the network decentralized and secure.

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Hank Klinger
Hank Klinger
Hank Klinger has been working online for seven years now. He has written for several national companies. Hank has been a part of our team for over three years, reviewing ICOs, new cryptocurrencies and helping us keep up to date with industry news. His primary knowledge is in marketing, sales, and advertising, and he uses that knowledge to research and pick out reliable sources of information to use as a basis for his writing.

[Alert] Use the author's self-conducted information at your own risk, do you own research, never invest more than you are willing to lose.

[Disclosure] The published news and content on BitcoinExchangeGuide should never be used or taken as financial investment advice. Understand trading cryptocurrencies is a very high-risk activity which can result in significant losses. Editorial Policy \\ Investment Disclaimer

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