Bitcoin & Data Science
As discussed in previous posts in this series, it is critical to the survival of the Bitcoin network that users run Bitcoin Full Nodes. Nodes in any distributed computer network are the means in which data is communicated. In the TOR network (The Onion Routing network) use a combination of Relay Nodes to send anonymized data around, and Exit Nodes to decrypt the data and then broadcast it to the greater internet. BitTorrent only works if Nodes on the network are seeding the file that others are trying to download.
In Bitcoin, there are several kinds of nodes. First we have lightweight SPV Nodes, explained here on bitcoincore.org: “A light Node does not download the complete blockchain. Instead, it downloads the block headers only to validate the authenticity of the transactions. Because of this reason light nodes are easy to maintain and run. Lightweight nodes use a method called Simрlifiеd рауmеnt vеrifiсаtiоn (SPV) to verify transactions.” SPV nodes are commonly used on mobile devices and other low-powered devices used for payment processing.
Next we have Full Nodes, which do download and keep a copy of the full Blockchain (the entire history of all Bitcoin transactions). These nodes are essential for keeping consensus on the network for how many coins exist, and in determining what transactions are valid. These are the primary nodes I will be discussing in this post.
Finally, there are Mining Nodes. Like Full Nodes, Mining Nodes must download and validate the entire Blockchain. These nodes are unique in that they and participate in the Mining process by trying to solve challenging mathematical problems. If they solve the problem before any other Mining Node on the network, they can then create a new Block in the Blockchain including whichever pending transactions they choose (typically those paying the highest fees).
It is important to keep an eye on the number of Full Nodes as a measure of the network’s strength, as well as their geographic distribution. The more distributed the network is geographically, the more robust it is against potential attacks, such as a particular government shutting down the internet.
In the image above we can see that a high concentration of Bitcoin Full Nodes are in Europe and the United States, with other notable areas being in Southeast Asia, Australia and South America. It is a testament to Bitcoiners worldwide to have as much distribution as we do, but ideally we would like to see more nodes coming online in other parts of the world in the coming years.
The image above shows the a graph of the total number of Bitcoin Nodes on the network since 2015 (note, there are several minority Bitcoin clients in addition to Bitcoin Core which are represented by the other colors). There was a significant increase in Nodes during the 2017 bull market, peaking at about 11,000 Nodes. Since then it has remained relatively constant, hovering in the 10,000 range. Hopefully we will see another spike in new Full Nodes come online as we enter another bull market cycle next year.