Incentivized Node Schemes Are a Bad Idea for Bitcoin

Bitcoin is an intricate system made up of the humans using the protocol, applications that surround it, miners, and nodes. Recently, there has been an argument that full nodes encompassing the network should be incentivized and adopt a two-tier system like some current altcoins. 

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However, contributing the full block reward to the mining architecture is a far superior system than two-tier reward protocols. Here are few reasons why.

Bitcoin’s Altruistic Nature Is Naturally Distributed in Contrast to Centrally Planned Cryptocurrencies   

It’s a common misconception that charts and node counters coming from places like are accurate. This is not the case.

Node counter websites try and connect to nodes that have open ports, but not all nodes have probeable ports. This means there is no accurate node count, as many people use firewalls and configurations that keep their nodes under the radar.

Node counts are not entirely accurate in fact they could be off by thousands.

Placing the reward in the hands of miners strengthens the network, as it secures the most integral part of Bitcoin’s system: Proof-of-Work.

Other, faulty, protocols, including Proof-of-Stake and its variants, such as Masternodes, reward large stakeholders with portions of the monetary supply. These two-tier operations are clearly hierarchical systems that operate in a top-down manner.

Bitcoin is superior because only those providing hard work for the system receive a reward, rather than wealthy stakeholders or an easily-configured, inexpensive machine that operates a full node.

To some people, devoting all the reward to miners may seem centralized, but in reality any individual or organization can optimize hardware and software to join in on the system. Contributors just have to work hard like members of any prosperous capitalist economy, rather than finding loopholes and cheats.

Proof-of-Work is also not the only incentive within the network. Full nodes are rewarded much like the decentralized BitTorrent or even email SMTP. Operating a full node within the Bitcoin network makes sure the mechanisms and rules within the protocol are followed accordingly.

BitTorrent altruism vs incentivized nodesThis altruistic reward incentivizes those running full nodes with a trustless environment, as opposed to light clients and third-parties that work for their own efforts rather than the network in general.

Another reward for operating a node is increased security within the Bitcoin network, which is good for the entire system. By helping out Bitcoin supporters, running nodes makes the protocol’s security robust in a natural manner.

Lastly, running a node offers the best privacy aspect possible to those transacting with the digital currency, as light clients and third-party servers are known to leak information. Cornell Professor Emin Gün Sirer explains in the Hacking, Distributed blog why the altruistic nature of Bitcoin is properly handled by not incentivizing nodes, stating:

“Just take a look at bittorrent. There is absolutely no incentive to seed files, yet people freely contribute bandwidth. In fact, people even seed files that violate copyright, where the expected financial outcome is negative. A model that cannot accommodate this is broken.—A good distributed system design is all about taking advantage of such mutually beneficial exchanges.”

Incentivized Nodes or Two-Tier Systems Is a Bad Idea

Centralized Distributed incentivized nodesOne of the biggest problems with subsidizing full nodes is that it attracts greed and system-cheating, as well as weakening support of the Proof-of-Work consensus mechanism. Rather than helping the network just because you want to, much like BitTorrent’s methods of reward, incentivized full nodes open many doors to spoofing and manipulating the system. And again, in most cases, blockchains that have popularized this tactic have given the power of governance and code architecture to the people at the top of the pyramid.

Even during the early days of mining, organizations and individuals such as ArtForz managed to manipulate the system through CPU and GPU mining techniques. When cheating takes place, people often escape into the realm of node validation, which centralizes their model exponentially. With a subsidized full node model, you would likely see more wasted resources aimed at cosigned transactions, and a so-called governance system operated by large bag holders.

On top of this, the possibility of botnets could come into play in the future, pillaging privacy and advancing malicious attacks aligned entirely with greed. As Bitcoin developer David A. Harding stated last year:

“If it becomes common for botnets to run full nodes, we’ll likely see Bitcoin’s port 8333 blocked as well.— Rather than paying random people on the Internet to manage our network security for us, we should make it easier to run a full node so more people can enjoy the security and privacy benefits that come from running their own node. To this end, the Bitcoin Core developers are working on improvements such as the headers-first sync included in 0.10.0 and the upcoming auto pruning, which will reduce the disk space requirements for full nodes, as well as several other improvements.”

The problem is that incentivized full node systems have yet to prove their decentralization and have not escaped from human elements of hierarchical bureaucracy. A centralized reward model can already be seen with blockchains running this method. A very good portion of these full node operators in altcoin-land are held on insecure, professionally hosted central servers.

So far, Bitcoin’s altruistic method of not subsidizing full nodes is the best way to administer distributed consensus. Everything else appears to be a scheme of greed and fallible humans trying to be central planners in a so-called decentralized open blockchain.

What do you think about two-tier systems that incentivize node operators? Let us know in the comments below.

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