For a cryptocurrency to function requires more than just a network of miners. It also requires nodes to propagate messages, serve the blockchain and provide security to the network. Essentially it needs full nodes, which are running 24/7 and have the core client on a machine installed with the complete blockchain.
Having more nodes means a greater decentralization, which means a more secure network so that users can always find a ready peer to propagate transactions. The problem is that the number of full nodes on the Bitcoin network has been dropping, from around 10,000 full nodes last year to around 6,000 today. One of the reasons for this is that there is currently no incentive to run a node, whereas miners get rewarded for their services.
Block Size Debate
This feeds into the block size debate, as bigger blocks could require more resources from full nodes, reducing the interest of hobby and independent operators, and leading to greater centralization as a result.
Gregory Maxwell recently said:
“Do people (other than Mike Hearn; I guess) think a future where everyone depends on a small number of “Google scale” node operations for the system is actually okay?”
Gavin Andressen responded to this, justifying the centralization aspect by implying that Satoshi also considered this as a viable possibility, foreseeing a future where:
“...it would be safe for users to use Simplified Payment Verification to check for double spending, which only requires having the chain of block headers... as the network grows beyond a certain point, it would be left more and more to specialists with server farms...”
But is there an alternative solution?
For example, the digital currency DASH has embedded an incentive program for full node operators into the core protocol. Just like miners, full node (or masternode) operators get paid a percentage of the mining block rewards, which has led to the currency attracting more than 3,000 full nodes in only 19 months. That is about 50% of the size of the Bitcoin Core network, while having only a small fraction of the market cap.
In addition, core client updates must be implemented within 7 days for a masternode to remain active and keep getting paid, so operators can be relied on to maintain a consistently up to date network. DASH verifies this using a system they call Proof of Service.
In the future, this system could also be used to ensure compliance with requirements for bandwidth, processing power and storage. However, the compensation for running a masternode could help keep them in the hands of independent operators, even when requiring more resources to run.
Is it that easy?
Incentivizing masternodes does pose a risk for the creation of multiple nodes by a malicious party in order to perform a Sybil attack on the network. This could be achieved with fewer resources than needed to perform an attack on a Proof of Work-based network.
Bitcoin developer Peter Todd recently commented on this issue:
“Sybil attacking the IP address space is pretty easy in comparison to acquiring hashing power sufficient to create false confirmations, so any attacker able to do the former will likely be running the full node you're connecting to anyway.”
However, DASH circumvents this by imposing a requirement of 1,000 DASH collateral to run a node. These coins must remain in cold storage in an address controlled by the operator, and associated with the node, for it to remain valid and receive rewards.
“If you are going to implement a full node incentive program, you should also require a collateral, to prevent people from abusing the system, explained Daniel Diaz of the Dash team to Cointelegraph. “The collateral is important as it helps prevent Sybil attacks, for example, blockchain analysis companies can’t run fake nodes for free to spoof transactions.”
Whilst this system seems to be working well for DASH, it would be foolhardy to hold it up as the holy grail of the block size debate. However, Bitcoin does not exist in a bubble, and it would be equally foolhardy to ignore potentially useful ideas in the altcoin space when debating the future direction of any cryptocurrency.