Bitcoin 2015: A Year in Review

The goal of this article is to review the growth of Bitcoin as a whole over 2015 compared with 2014. This article will be broken down into months, covering January-December. Bitcoin’s price over the months will be explained simply rather than in-depth for the sake of brevity. I hope you enjoy a review of 2015!

Also read: SF Block Chain Conference by Lighthouse Partners to Feature More than Just Bitcoin 

Disclaimer: The author is invested in Bitcoin

Before jumping into 2015, we will establish some key facts that will be revisited at the conclusion of the article. These statistics will be very important for calculating Bitcoin’s growth over 2015 and will allow us to make predictions about how Bitcoin might progress over 2016.

2014 Bitcoin statistics (December 2014)Estimated wallets: ~ 15.8 Million wallets (hosted + desktop + mobile)note: calculating the total amount of Bitcoinwallets is very difficult, this count includes dormant wallets that have not been touched over long periods of time. This also includes wallets that have never held funds.Estimated daily transactions: 97,296Estimated daily volume: 1,282,270Bitcoin difficulty: 40,007,470,271Bitcoin hash rate: 286,384,627 Gh/S

Source: Blockchain.info

My Bitcoin Predictions for 2015 Made at the end of 2014Predicted wallets: ~ 20.38 Million wallets (hosted + desktop + mobile)Predicted daily transactions: 125,584Predicted daily volume: 1,282,270Bitcoin difficulty: UnknownPredicted Bitcoin hash rate: 11,053,500,000 Gh/SActual 2015 statistics (December 2015)

Estimated wallets: 17.4 Million wallets (hosted + desktop + mobile)

note: calculating the total amount of Bitcoinwallets is very difficult, this count includes dormant wallets that have not been touched over long periods of time. This also includes wallets that have never held funds.

Estimated daily transactions: 124,601

Estimated daily volume: $72,475,849

Bitcoin difficulty: 93,448,670,796

Bitcoin Hash rate: 789,710,965.71 Gh/S

Source: Quandl, Bitcoin Wisdom, Blockchain.info

Brief Summary of Shifts

Bitcoin as a whole has become more global with shifts that signal growth internationally rather than just in a few large countries. Bitcoin is becoming more accessible to common people who do not consider themselves to be highly tech savvy. As a whole, Bitcoin has grown significantly this year. While the number of wallets didn’t grow as much as I had predicted in my 2014 year in review article, I was almost spot on with the number of daily transactions. Transaction volume has increased drastically this year over last and Bitcoin is flowing more than ever before as more and more people get involved. Hashrate didn’t increase as much as I had expected, but predicting shifts in mining technology and miner trends is very difficult. When Bitcoin block rewards halve again in July 2016, things will get even more unpredictable.

Without further ado, I will go through the months of 2015 and discuss major news and show price changes without speculating on what caused the changes in Bitcoin’s price.

January

Market:

Peaking at $318, Bitcoin’s price settled at $217 by the end of the month

Major events:

Storj, a decentralized cloud storage was proposed byShawn Wilkinson, Tome Boshevski and Josh Brandof. Since the announcement, the Storj project has advanced significantly and is currently working on testing the platform through different test groups. Storj, based on blockchain technology, allows for the distribution of data storage across a network and allows users to rent their excess hard drive space. Farmers will be able to control what type of content they store on their drives with the project.

Partnering with Coinbase, Braintree, a subsidiary of Paypal, launched beta testing for Bitcoin integration on their platform. This development marks the advancement of mainstream Bitcoin adoption and was one of the major pieces of news in January. Since their testing, Braintree has integrated Bitcoin for merchants.

February

Market:

Bitcoin’s price peaked and settled at $262 in February.

Major events:

Ross Ulbricht was found guilty of all 7 of his charges, including computer hacking, drug trafficking, and running a criminal enterprise. Following the trial, other black market marketplace in the deep web soon replaced the original Silk Road. Since the original Silk Road, online black markets have taken precautions to increase security and anonymity, continuing the on-going war on drugs and online crime.   

 Chinese Bitcoin exchange BTER had a cold wallethacked and lost 7,170 bitcoins, worth almost $2 million at the time of the theft. After the theft, BTERfroze the entire site to figure out the issue. BTER has since recovered from the theft and continues to remain in business.

March

Market:

Peaking at $296, Bitcoin’s price settled at $246 by the end of the month.

Major events:

Bitlicense received many revisions, showing that the NYDFS was willing to listen to people in the digital currency community. The revisions made to the proposal increased the requirements to run an exchange and provide personal information of any employees with access to customer funds. Just as the previous version, the proposal included exemptions for companies developing Bitcoin protocol for non-financial means and software developers working on projects.

A report by Goldman Sachs revealed how important China is in Bitcoin’s development. The study found that 8 out of every 10 trades involved the Chinese yuan in both selling and buying. According to the company, the surge was believed to be caused by waning confidence in the Chinese economy and weakening Yuan value. Goldman Sachs also believed that young investors were looking to invest in something other than the stock market. Transaction volume increased significantly during march, hinting at a larger growth for Bitcoin outside of the United States

 April

Market:

Peaking at $260, Bitcoin’s price settled at $232 by the end of the month.

Major events:

 Following a criminal complaint in federal court, two former US federal agents that investigated Silk Road were charged with stealing Bitcoin and extorting money from Ross Ulbricht along with other criminal charges. Former agents Shaun Bridges and Carl Force were charged with wire fraud and money laundering, theft of government property and conflict of interest. The information that Agent Force was secretly investigated during the trial but the defense was barred from using the information during the trial.  

May

Market:

peaking at $246, Bitcoin’s price settled at $226 by the end of the month.

Major events:

U.S District Judge Katherine Forrest declared Ross Ulbricht’s actions to be a carefully planned life’s work rather than a mistake of youth. Consequently, Ulbricht was labeled as a “drug kingpin” and person “who attempted to arrange no less than five murders.” In addition to the life sentence Ulbricht received, he had to pay a sum of $184 million, the amount of the alleged gains of sales on the Silk Road. Judge Forrest used Ulbricht to set an example on the war on drugs and online crime.

June

Market:

Bitcoin’s price peaked and settled at at $258 by the end of the month.

Major events:  

Bitcoin was banned in Ecuador following a government e-money initiative to establish a new currency. Resolution 064-2015-M decreed Bitcoin illegal in the country and paved the way for banks to integrate the new e-money established. Citing lack of supervision and volatility, the resolution passed and is currently in progress for full integration within the country.

The final draft of Bitlicense was released to the public receiving very mixed reactions from experts in the digital currency sector. Some embrace the regulation and see at as helpful to the growth of Bitcoin as a whole where others see it as very restrictive for companies seeking to operate or provide services to citizens of New York.

July

Market:

Peaking at $311, Bitcoin’s price settled at $280 by the end of the month.

Major events:

Ben Lawsky, one of the leading contributors towards Bitlicense received criticism from the Bitcoin community for resigning from the NYDFS and forming his own cryptocurrency consulting firm in the private sector. Accused of conflict of interest and having direct political connections, Lawsky’s firm coming to light shortly after Bitlicense upset many in the Bitcoin community. Lawsky openly acknowledged the accusations but dismissed them, stating that he no longer has power in the NYDFS.

August

Market:

Peaking at $283, Bitcoin’s price settled at $229 by the end of the month.

Major events:

After being arrested in Japan for allegations of system manipulation on Mt.GOX, Mark Karpeles admitted to tampering with user balances for personal gain. Having unmatched power within the company, Karpeles gave into temptation and tampered with user balances for personal gains in the millions of dollars. This was another piece of drama in the ongoing Mt.GOX catastrophe which resulted in a major hit for Bitcoin’s health on a whole.

September

Market:

Peaking at $245, Bitcoin’s price settled at $237 by the end of the month.

Major events:

Following his arrest in August, Mark Karpeles was charged with Embezzlement in Japan. Depending on the results of his trial, Karpeles could face up to ten years in prison for stealing over $2 million USD worth of customer money to fund his own personal projects. Creditors of Mt.GOX are still waiting to recover their funds.

October

Market:

Peaking at $331, Bitcoin’s price settled to $325 by the end of the month.

Major events:

Advancements were made in quantum computing as a team from the University of New South Wales developed a device that allows two Qubits to communicate with one another. Many are concerned about the impact quantum computing will have on Bitcoin, but research shows that the impact of quantum computing could be addressed and that quantum computing would not be available in bulk at first, giving Bitcoin to adapt to the new age of computing and implement measures to increase the security of the network.

November

Market:

Peaking at $484, Bitcoin’s price settled at $362 by the end of the month.

Major events:

took place with around 44,000 bitcoins being sold to various buyers of separate blocks. This was the third and final SIlk Road auction to take place in which seized bitcoins were sold to the highest bidders.

 November was by far the most exciting month in terms of Bitcoin’s price. Market shifts caused huge growth for Bitcoin’s value over this month. Many people believed the Chinese Bitcoin market to be responsible for the shifts and upward pressure.

Bitcoin Black Friday was once again a major success as Bitcoin users scrambled to find great deals with their BTC. Transactions and transaction volume spiked on Black friday and remained very high through the end of the year, signaling global growth. 

Finally, the first Blockchain backed index came online, signalling a major innovation and an important development in bringing blockchain technology to the financial market.

December

Market:

Peaking at $466, Bitcoin’s price settled at $430 by the end of the month.

Major events:

The blocksize debates continued to heat up in December as proponents from both sides attempted to advance their cases for blocksize. The majority of miners do want to increase blocksize in order to generate higher transaction fees which will eventually be required to sustain the network. Others argue that the fees associated with transactions with an increased block size will stifle global adoption and make Bitcoin less attractive to new users. Decisions on the block size debate will need to be made in 2016 which will either result in the continuation of the protocol or a hard fork to implement larger block size.

Conclusion

2015 is deemed by many to be the year of the blockchain. With so many new startups using blockchain technology and the global growth of Bitcoin as a whole last year, 2016 is likely to continue the growth and allow for further Bitcoin adoption and the integration of the blockchain into financial institutions around the globe. As a whole, Bitcoin’s market seemed very unimpressive up until November, where massive gains and recoveries were made. While the market is still very young, 2015 was very important in advancing the currency and the underlying technology behind it.

Bitcoin data strongly suggests that Bitcoin is growing on a global scale now rather than just in a few main countries. As people continue to build on the blockchain and develop new products and services, Bitcoin adoption should continue to increase as consumers are given more buying power and discounts for using Bitcoin. As utility increases for both merchants and consumers, payment processing companies will expand to offer Bitcoin-based services globally.

Many Bitcoin 2.0 projects were realized in 2015 and as a result, the utility of Bitcoin was greatly increased for the average Bitcoin user. Bitcoin is becoming more than just a digital currency, it’s becoming a globally recognized technology with the capability of empowering people to take control of their finances and gain the benefits of savings and other technology-based improvements which are improving their quality of life.

Unlike last year, I will not predict the statistics for 2016 as there are too many factors at play. With the block size debates, predicting statistics for the end of 2016 would be very hard if not impossible without knowing whether or not block size will be increased in a hard fork. With the block reward halving in July, things are even more unpredictable. So instead of quantitative predictions for 2016 I’ll close with my prediction for 2016.

I believe 2016 will be very important for Bitcoin both in maturing its market and in expanding blockchain technology throughout global business. The blockchain is being explored by more and more financial institutes and has the power to revolutionize money in general. I believe we will see big changes for Bitcoin in 2016 and huge advances in the blockchain. Should the block size be increased, sidechains could become more viable and lead to the development of even more applications of Bitcoin. 

Ashton Kutcher: Bitcoin is Best Hedge Against a Trump Nomination

American actor, producer, angel investor and bitcoin enthusiast Ashton Kutcher stated on social media that bitcoin may be the best hedge against a Sanders or a Trump nomination.

Bitcoin as an independent currency has become an increasingly popular asset to conventional investors over the past few months. As legendary Swiss investor Marc Faber explained, bitcoin has been the only currency out of all asset classes, reserve currencies, and commodities worldwide, which recorded a positive annual growth in 2015.

Interestingly, the demand of bitcoin has always risen in times of economic turmoil; as the national currency inflates and the government begins to collaborate with its central bank to implement strict capital controls to regain financial stability.

Control of Trump and Sanders

United States presidential candidate Donald Trump and Bernie Sanders have already begun to consider various financial reforms and strict remittance policies to restrict expat workers from sending the US dollars back to their native soil.

In 2015, Trump announced that as a president, he will enforce important financial policies to impound all remittance payments derived from “illegal wages,” referring to the Mexican expat workers in the country.

“Mexico must pay for the [border] wall and, until they do, the United States will, among other things: impound all remittance payments derived from illegal wages,” said Donald Trump.

The implementation of an aggressive proposal like Trump’s remittance policy could heavily affect the economy of Mexico and the value of its national currency. According to the Mexican central bank’s publication, expat Mexican workers residing in the U.S. sent home US$23.6 billion in 2014. Although remittance payments account for 2% of the economy, poor areas of Mexico derives 10.5% of their income from remittances.

“In 2010, Mexicans working in the United States sent back more than US$22 billion in remittances to family members, accounting for 2.1 percent of the Mexican GDP. Although remittances are a small part of the Mexican economy, they are the third source of foreign exchange after oil and manufacturing exports, and represent an amount greater than the international tourism receipts and foreign direct investment inflows. Moreover, for the poorest rural areas of Mexico, remittance transfers constitute 19.5 percent of their income, a percentage that is higher that transfers from government poverty reduction programs, such as the conditional cash transfer program Oportunidades (10.2 percent) and agricultural support programs, such as Procampo (3.8 percent),” the study read.

 

With Bernie Sanders planning for a major financial reform, BitPay President Tony Gallippi mentioned on social media that buying bitcoin could also be a hedge against negative interest rates and quantitative easing. Over the past few months, central banks of Denmark, Switzerland and Japan have begun to implement negative interests for savings.

“Ultimately, negative interest rates from a veteran of monetary expansion such as the BOJ mark a capitulation about the effectiveness of QE alone as an inflation-targeting tool in world of lingering growth-debt imbalances and commodity price wars,” said Lena Komileva, economist at G-plus Economics, in emailed comments.

Economic Recession, Interest Rates and Digital Currency

With the current fiat based economy, no one can escape recession. The threat of recession has been constantly looming over the heads of major economic powers like the United States for over a decade now. Recession is caused by uncontrolled rise in deflation resulting from falling market demand. The fall in demand, if left unchecked can create a domino effect resulting in a massive decline in a nation’s GDP. The Great Recession of 2008-09 is one of the best examples of how a recession can affect not just the governments and big corporations, but individuals as well. Governments and Central banks frequently introduce measures to keep deflation in check by introducing various monetary policies, all part of the effort to prevent the economy from going to a recessionary spiral. The US Federal Reserve’s efforts to kick-start the country’s economy from the Great Recession and to prevent another recession continues even today. The US economy is under prolonged economic sickness for over a decade now. Even though it has been alleviated from most of the major symptoms, the signs of weakness are still visible. The latest report of US GDP clearly shows that the country’s economy is in a slowdown.

US Economy Moving Towards Recession?

According to the Bureau of Economic Analysis, thefourth quarter estimate of GDP in 2015 shows a significant reduction from the previous quarter. The first estimate for Q4 (2015) shows about a 50 percent decline in various sectors from that of Q3 (2015). This report has got economists predicting the US economy falling into a deflationary trend in 2016. As the news spreads, it has now fallen upon the US Federal Reserve to introduce a new set of measures to counter the current trend with intentions of reviving the economy before it collapses even further. However, this time the Federal Reserve may include a few new tools into its bag of tricks to fend of a recession. In a recent interview with one of the leading financial information websites, the former chairman of the Federal Reserve Ben Bernanke who has gained a reputation as Helicopter Ben stated that the country’s central bank might consider negative interest rates to keep the economy afloat while pushing the growth trend upwards. Officially, the United States believes that the economy is in no danger of collapsing, but not everyone is sold to that story. Peter Schiff, the CEO and Chief Global Strategist for Euro Pacific Capital believes that the country’s economy is on its path towards serious destruction and unless the Fed implements certain steps including negative interest rates, the economy will be in recession. He drives the point further home by saying that the country may already be in recession and no one has realized it yet. Negative interest rates discourages people from hoarding assets in their accounts. This will promote lending and investments, thereby supplying the much needed capital to improve the economy. It has been tested in the EU already with some positive results. Reducing the interest rate from already near zero to negative will have its blow backs as well. People may move away from traditional financial institutions. Banks and financial companies can cushion their customers from the effects for sometime after which they will be forced to pass on the burden to maintain profitability.

Digital Currency and Interest Rates

Changes made to interest rates have their consequences. Most of these changes are short term fixes which will stop being effective after some time. In order to ensure a stable economy, the Federal Reserve and financial institutions will have to keep their operating expenses low and margins fair. Digital currencies like bitcoin can be a savior in this regard. The potential use of central banks issued digital currency has already been touched upon by many eminent economists. Recently, the chief economist of the Bank of England had mentioned that the use of such digital currency can help both the central bank and other banking institutions reduce the costs involved in maintaining and operating the instruments of transactions. According to Andy Haldane, by reducing the overhead costs, interest rates can be regulated according to the changes in global economy to maintain sustainable growth. On the other hand, if the Federal Reserve introduces negative interest rates for the longer term, it is possible that people will either switch to cash or invest in assets like bitcoin instead of depositing in banks.

Coinbase Shift Bitcoin Card Processes over US$1 Million

30Shift Card, the first U.S. bitcoin Visa debit card which allows Coinbase users to transact at over 38 million international merchants, has already processed more than US$1 million worth of bitcoin.

Since its launch in November, over 10,000 people have signed up for Shift Card, making the product one of the most successful applications launched by Coinbase to date.

According to the user data provided by the Coinbase team, the number of transactions processed by Shift Card spiked during the holiday season, processing over US$160,000 worth of bitcoin. The 7-day volume during the Christmas season surpassed the trading volumes of several popular bitcoin exchanges including Vaultoro and Bitcoin Central.

Since its transaction spike in late December, 2015, Shift Card has maintained a substantially high weekly volume of US$80,000 over the past few weeks.

Following the short term success of Shift Card and its increasing popularity, the Coinbase team plans to expand the reach of Shift Card to other states.

“In the coming months, we’ll continue to work with Shift to offer the card to people in more states. The waiting list is long and growing by the day, so we’re anxious to broaden geographic eligibility. Additionally, Shift is working hard on new features to make the card more useful.”

Currently, the cards are available to 32 states in the United States. California, Texas and Washington account for over 50% of the transactions processed by Shift Card.

An increasing number of users have been using the Shift Card at retail outlets, convenience stores and coffee shops, including Amazon, Walmart, McDonalds and 711. According to the chart provided by Coinbase, Shift Card processed over 380 transactions for Amazon and settled an average of 300 transactions for food chains like McDonalds and Starbucks.

Regardless of the solid bitcoin infrastructure in the U.S, bitcoin users are struggling to spend their bitcoin in daily basis, primarily due to the lack of bitcoin merchants and awareness of the digital currency. Over the past few years, leading merchant payment processors like BitPay and Coinbase have been trying to raise mainstream awareness to convince traditional and conventional merchants to offer bitcoin as a payment option. However, many startups failed to appeal bitcoin to the majority of the merchants because of the volatility of digital currency. This week for example, the price of bitcoin plummeted to US$378 per coin, due to the instability in the governance of the digital currency and strong performances of alternative cryptocurrencies.

“Merchant adoption has come a long way over the past few years, but it’s still difficult for people to make regular purchases with bitcoin. Buying gas at a local gas station or groceries at a neighborhood grocery store with bitcoin has not been possible in most cities in the U.S.,” explained Coinbase.

Coinbase Shift Card, which operates as an international Visa card could potentially be a stepping stone towards the mainstream adoption of bitcoin. By enabling bitcoin users to spend the digital currency at any Visa accept outlets across the globe, Shift Card attempts to raise mainstream popularity and awareness of Bitcoin.

Bitcoin Price And The Bear(TM)

Bitcoin Price And The Bear(TM)30/01/2016Venzen Khaosan4Bitcoin AnalysisBitcoin Price NewsNews

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Bitcoin price is caught in a negative social mood. Trading below the critical $400 level, and descending, what can we say?

This analysis is provided by xbt.social with a 3-hour delay. Read the full analysis here. Not a member? Join now and receive a $29 discount using the code CCN29.

Bitcoin Price Analysis

Time of analysis: 15h00 UTC

OKCoin 3Month 1-Hour Chart

From the analysis pages of xbt.social, earlier today:

Price is drawing lower beneath its 200-period moving average. It is not clear if we’ll see $300 eventually, but negative mood pulls the king of commodities lower.

The amount of money invested in Bitcoin Core is large. Silicon Valley seems to think that they can disrupt that investment with a nilly-willy fork. That’s not clear thinking. Censorship-resistance means that Bitcoin Core remains a permanent feature and Classic(TM) and Unlimited will never succeed, like the failed pretender-XT.

Summary

Bitcoin price is trading lower in negative mood. The antagonists are clear to see. Later we expect a reward-halving rally, but for now it’s lower on negative expectation.

Bitfinex Depth Chart and Buy/Sell Volume

How to Save Bitcoin's Node Network from Centralization

Jameson Lopp is a software engineer at BitGo, creator ofstatoshi.info and founder of bitcoinsig.com. He enjoys building web services and is intrigued by problems of scale. 

In this feature, Lopp examines the causes of the diminishing number of bitcoin nodes across the network and discusses what it might take to reverse the trend.

Decentralization is, I would argue, the most important property of the bitcoin network. Without it, many of bitcoin’s other properties, such as its ability to facilitate transactions without a third party or provide a permissionless platform for innovation, would be compromised.

There are many facets that contribute to bitcoin's decentralization, the most important of which is the network of nodes that comprise bitcoin’s infrastructure by holding copies of the blockchain and sharing block and transaction data across the network.

And yet, despite their importance, the number ofnodes has been dwindling for years, arguably centralizing the network.

I’ve been writing about the decline in node counts for a couple years and have been monitoring my nodes with the Statoshi software I released in 2014. Because the performance of nodes and the bitcoin network in general has become a hot topic in recent scalability debates, I hope to shed some light on a few points that haven't received much attention.

In the early days of bitcoin, the only way to participate on the network was by running a full node. Over the years, the ecosystem has flourished and now there are many wallet options for users to choose from. Most wallets today are either lightweight clients that query full nodes for data, or they are hosted by third parties and thus do not require the user to run a full node.

As a result, most new users are opting against running a full node, while some existing node operators have chosen to shut theirs down. How many nodes does bitcoin really need?

Depending upon your perspective, you could reach several conclusions:

One: Since bitcoin is trustless, the only node that matters is the node that you run.Hundreds: Or enough to make it infeasible for any single entity to shutdown a significant portion of the network due to geographic and jurisdictional diversity.Thousands: Or enough to support high demand from SPV clients for connection slots. SPV clients are not necessarily just wallets, but can also be peer-to-peer apps like Lighthouse.

On the opposite end of the spectrum, we can never have too many nodes or decentralize the network too much. That said, how should we react to the fact that fewer than 1% of bitcoin users run a full node?

When I asked Bitcoin Core develop Pieter Wuille several years ago about the importance of node counts, he had this to say:

"What full nodes do is make sure the network is honest. And this is not so much a question of how many there are, it’s more about how hard it is to run one."

Pieter is one of the most prolific bitcoin developers in terms of code and features added to the protocol; he knows what he’s talking about. Pieter is also the author ofSegregated Witness, which will hopefully provide us with a path to implement various scalability solutions for bitcoin.

Because bitcoin has become popular enough that we are running into the 1MB hard cap on block sizes, there is a great deal of contention about how we can scale the network in order to support more users without adversely affecting bitcoin’s decentralization.

Block size debate

One argument that comes up often during the block size debate is based upon cost of running a node. There is a theory that higher costs (such as additional computational resource requirements to validate and relay larger blocks) will result in fewer nodes and vice versa.

Developer Paul Sztorc introduced the concept of CONOP (cost of node-option) in his excellent post, Measuring Decentralization. He argues that lower costs should result in more people undertaking actions that are beneficial to them. This argument makes sense to me if you assume that there aren’t more variables at play than just the cost of operating a node.

Later in this post we’ll discuss other factors that likely affect CONOP.

After observing and participating in scalability debates over the past year, I find myself continually coming back to the same problem: there are no defined minimum resource requirements for running a node.

As a result there is no target for bitcoin developers to take into account when discussing the possibility of making protocol changes that would result in increased resource requirements to run a full node. If a minimum specification is to be developed, it should probably be based upon current hardware that is being used to run full nodes.

An ARM-based device such as a Raspberry Pi or ODROID+ appears to be the current minimum viable specs to run a node. It can keep up with 1MB blocks, though it takes two weeks to perform the initial blockchain sync (to block 390,000) due to the low-powered CPU.

You can buy a Bitseed for $170 or a Bitcoin Mini for $140. If you’re tech savvy you can build your own Raspberry Pi node  for $100 or you can build a fairly powerful node for about $200 that should be able to perform well for several years.

Another overlooked problem when debating the acceptable cost of running a node is that we have never defined the target user base for running a full node.

Demographic polls that have been conducted over the years continue to indicate that most bitcoin users are technically-oriented Caucasian males under the age of 30, but this is a reflection most early technology adopters.

There seems to be a general sentiment in the community that in order for bitcoin to succeed long-term, we need to find a way to bring it to the masses.

Still, as the following chart from BitNodes shows, nodes are heavily concentrated in North America and Western Europe.

Who do we want running a full node? The naive answer would be “everyone,” but clearly that’s not feasible since Internet access is not yet ubiquitous.

I suspect that reliable affordable broadband Internet access is a major reason for the current geographic distribution of nodes.

Gavin Andresen once said:

“Most ordinary folks should NOT be running a full node. We need full nodes that are always on, have more than eight connections, and have a high-bandwidth connection to the Internet.”

Data collected with Statoshi shows that a highly connected node needs on average 200 Kb/s downstream and 1.5 Mb/s upstream, though usage is much spikier and can easily see peaks of 2 Mb/s downstream and 40 Mb/s upstream.

According to Akamai’s State of the Internet report, the average available bandwidth is 5 Mb/s, but their list only covers a quarter of the world.

Estimates show that as of 2014 only 60% of the global population is using the Internet.

A minimum node specification

A well-designed minimum specification should set targets for the performance characteristics desired for a node, the resources required to meet those performance targets and a cost to obtain hardware that meets the performance targets.

I’d recommend that it incorporate logic similar to that developed by Jonas Nick, Greg Sanders, and Mark Friedenbach for block size validation costs. Their approach is well thought-out, though a min spec would need to be more complex because it would have additional dimensions.

For example, a min spec might look something like this:

Target hardware resource cost: $200Target worst case time to validate a block: 10 secondsMinimum network I/O: 2 Mb/sMinimum disk I/O: 2 Mb/sMinimum CPU: 5,000 MIPSMinimum RAM: 1 GB

Jean-Paul Kogelman gave a great example of how an established minimum specification would help assist with decision-making during scalability debates by examining recent transaction signature verification cost changes.

In versions of Bitcoin Core before 0.12, OpenSSL is used to verify signatures. As of 0.12, signatures are verified with secp256k1, which is approximately five times faster than OpenSSL. As a result, transaction (and thus block) verification time should become nearly five times faster.

Since this should drop the worst case time to verify a block by nearly 80%, the minimum specification then gives us a simple binary choice:

Adjust the minimum resource requirements downward appropriatelyAdjust other parameters such as number of signature operations per transaction and number of transactions per block upward appropriately to bring us back in line with the minimum performance targets.

When changes are proposed to the protocol that have a performance impact, if a minimum specification is available then it should be clear how it is affected by the changes. As technology progresses and the cost of computational resources drops, it should also be clear how the resource requirements can be increased without raising the cost of operating a node.

Thus, the appropriate options for responding to changes should be less controversial than what we’ve experienced with the block size debate. If, for example, it is clear that node operators who are running hardware on minimum requirements will not be adversely affected by increasing the allowable signature operations per block to match the performance gain from secp256k1, it should not be controversial to increase it.

Cost versus benefit

I find it to be an admirable goal to try to keep node operation costs low and accessible to the average user.

On the other hand, if we keep the resource requirements of nodes at the level of whatever the latest Raspberry Pi model on a (global average) residential Internet connection can handle, I’m not sure how helpful it will be if the demand for inclusion in blocks results in transaction fees that price out more users.

Stated differently, if the cost of using the network rises to the point of excluding the average user from making transactions on bitcoin’s blockchain, then they probably aren’t going to care that they can run a node at trivial cost. Think of it as a balance between the cost of transaction verification and the cost of transacting.

Layer-two networks (such as Lightning Network and 21’s micropayment network) can certainly play a role in easing the burden here, but remember that even users of layer two networks will eventually need to settle against bitcoin’s blockchain.

There are numerous costs to run a node, such as:

Initial learning curve (time cost)Installation, configuration and initial sync cost (time, bandwidth, CPU)Ongoing running costs (bandwidth, CPU, RAM, disk)Maintenance costs (time to perform troubleshooting and upgrades).

The initial learning curve to see the value of bitcoin can take weeks or months. Figuring out how to run a node can take a few hours – I’m fairly certain most people never even make it to the port forwarding step.

Initial sync time will take from several hours to several weeks depending upon the machine’s specs. I’d subjectively peg maintenance costs at one hour per month in a worst-case scenario.

Thus far we’ve examined the cost of running a node from a variety of perspectives. It’s sensible to theorize that higher costs will result in fewer nodes and lower costs will result in higher nodes - but what if the cost isn’t the only factor?

BitPay CEO Stephen Pair succinctly stated:

“There are only as many nodes on the Bitcoin network as there is demand to perform independent and trustless validation of transactions.”

I think that Pair and Stzorc are both correct, and thus the node count is a function of the demand for trustless transaction validation versus the cost of running a node. As such, I’d posit that node count is also dependent upon the value being stored and transacted by bitcoin users.

While some claim that running a node today is purely altruistic, there are incentives for doing so:

Investment: If you’re highly invested in bitcoin, you may wish to support the network in order to protect that investment.Performance: It is orders of magnitude faster to query a local copy of the blockchain as opposed to querying blockchain data services over the Internet.Permissionlessness and censorship resistance: By receiving and sending transactions from your own node, no one has the power to stop you from doing so.Privacy: If you’re querying other nodes or services about blockchain data, they can use those queries to try to deanonymize you.Trustlessness: Owning a copy of the ledger that you have validated yourself means you don’t have to trust a third party to be honest about the state of the ledger.

It is my perspective that, instead of aiming for any individual to run a node, the goal should be for anyone with a nontrivial amount of value in bitcoin to run a node. Those who have the most value at risk have the greatest incentive to expend resources to protect their assets by operating in a trustless manner.

We’ve seen BTCC recently deploy 100 nodes and we know many other bitcoin businesses run their own nodes. I myself oversee the operation of multiple mainnet and testnet nodes on behalf of BitGo and also run several nodes personally because I have a great deal of resources invested in bitcoin and desire to support the network.

If a user only owns $100 worth of bitcoin, then it doesn’t make much sense for them to run a full node unless the time and resource cost to run a node is on the order of a few minutes and a few pennies.

In order to get perspectives from bitcoin users regarding their decision to run or not run a full node, I ran a survey and collected more than 500 responses. This is clearly not a rigorously conducted scientific poll, but hopefully it’s better than nothing.

You can view the high level analytics here and the raw data is available here.

Some key takeaways from from this survey:

24% of those surveyed used to run a full node but don’t any longer42% of non-operators don’t see any incentive to run a node44% or more of node operators use their node for their own direct benefit57% of users are willing to dedicate over 100 KB/S of upstream bandwidth to a node58% of users are not willing to pay more than $10/month to run a node81% of node operators run a node at home.

The most surprising result was that there appears to be no correlation between a user’s investment in bitcoin and their interest in running a node.

This may have been too vague a question, however, since it didn’t ask for specific monetary amounts.

I still believe that any entity (especially a business) that transacts or stores significant amounts of value is more incentivized to run a node.

Conclusions

Recall the often cited theory that higher costs will result in fewer nodes.

This may not be a valid assumption, since higher transaction volume may be a result of higher adoption and thus more entities willing to run full nodes.

Yes, the cost will be higher and may very well rise over the $10 a month threshold that the average user is (currently) willing to pay, but if the utility of the bitcoin network continues to increase and more entities are transacting large amounts of value, they will have greater incentive to pay higher costs to operate in a trustless manner.

On the other hand, we should also keep in mind that there is little use participating in a decentralized system when the validation cost is low but the transaction cost is extremely high due to contention for block space.

If we're approaching the block size debate from a resource usage standpoint, it seems to me that someone is going to be excluded either way. Not raising the block size will exclude some users from sending transactions while raising the block size will exclude some users from running nodes.

There are many variables at play and we should strive keep them in balance so that we can grow the ecosystem while keeping it decentralized.

In order of decreasing priority, I recommend that bitcoin developers:

Determine a minimum resource specification for running a full node with target performance characteristics such as worst case time to validate a block.

Focus on increasing the transaction volume that the bitcoin network can support, thereby increasing its utility and the number of users (and use cases) it can service. As a result, there should be more entities performing high value storage and transfer that will be incentivized to run their own nodes.

Focus on making it easier to run a node from a learning curve standpoint. This should also occur naturally as bitcoin builds a longer history and reputation.

Make it easier to run a node from a computational resources standpoint. Enabling a node to instantly run in SPV mode while syncing the blockchain in the background would be a nice first step. Bootstrapping a node from UTXO commitments would be a giant leap forward.

Investigate directly financially incentivizing node operation such as by providing data services in exchange for fees.

If we can keep the cost of running a node from increasing at a rate faster than the value of running a node, we should be able to keep the network infrastructure decentralized even while increasing the burden placed upon node operators.

The demographics of node operators will likely continue to change, but I encourage bitcoin users to embrace changes to the ecosystem so long as the fundamental property of decentralization remains intact.

The Venezuelan Economy: Bitcoin To The Rescue

It is popular knowledge that the Venezuelaneconomy is passing through some very difficult times. With an inflation of 275% in 2015, and IMF forecast of a far worse situation in 2016 as the nation struggles to find stability in it’s economy. CanBitcoin play any role at all? If so, how big a role can the Cryptocurrency play in the given situation?

Venezuela has been in the news lately, but not for very positive reasons. The country faces severe social and economic problems, such as high inflation (the highest in the world), shortage of basic goods in the markets, high criminality and mediacensorship. With the nation’s currency highly devalued in the parallel market, its citizen are turning to other currencies for financial safety albeit in both the right and the wrong ways.

Cointelegraph caught up with the Randy Brito, Founder of BitcoinVenezuela.com, a non-profit bitcoinCT r:  8 information site that has carried the responsibility of not just creating bitcoin awareness in Venezuela, but also in educating citizens on the fundamentals and inherent values of the cryptocurrency.

There is no resistance

Randy believes that Bitcoin can become a genuine saviour of the Venezuelan economy for a number of reasons.

Like several other governments across the globe, the Venezuelan government has not come out clearly to either adopt or prohibit the use of bitcoin, Randy acknowledges this fact and goes on to add that the government’s posture speaks of a silent approval. He believes this is because the government censors negative statements towards bitcoin, and because a reasonable number of those in government and their relations use Bitcoin. For example, Guido Ochoa (jnr), who happens to be the  son of a member of parliament, bought out theBitcoin mining company Hashfast after it declaredbankruptcy in the United States.

Another thing that has encouraged government tolerance of bitcoin is that most Venezuelan government officials prefer to conceal their wealth, and the semi-anonymous nature of bitcoin suits them very well.

Bitcoin as a viable replacement

Randy says that he hopes that Bitcoin will replace the long running demand for foreign currencies like the US dollar, due to the loss of value of the Venezuelan Bolivar, for people seeking a safe haven for their wealth. Randy says:

“The people need to know that Bitcoin can be better and more flexible and a good way to store wealth. The only problem with the Bitcoin is that it is not very liquid, astransactions are usually irreversible. That notwithstanding, Bitcoin can be informally accepted as it is not prohibited in Venezuela, just like the dollar credit cards received by merchants, the bitcoin can be received also and used even for international purposes.”

Randy also noted that the majority of bitcoin users within the country at the moment employ such service as a means to move their money out of the country.

No exchanges, no problem

On some of the hitches that Bitcoin has experienced so far in Venezuela, Randy points out the lack of exchanges, stating that there is only one registered bitcoin exchange within the country, Surbitcoin. This is likely due to the absence of modern technology within the nation’s banking sector. Problems with obsolete banking infrastructure leave Venezuela’s finance sector well exposed to fraud, problems which are often exacerbated by industry insiders.

The absence of local exchanges has not stopped the growth of the bitcoin market in Venezuela. In Randy’s words:

“The Bitcoin market in Venezuela is indeed big and growing at a fast rate. The absence of exchanges have seemingly gone unnoticed as most bitcoin miners within the country trade informally with people they can trust, basically for reasons of privacy, as they seek to conceal their source of wealth from the public.”

Bitcoin will empower the people

Randy insists that the Bitcoin intervention could be the ‘bailout’ that the Venezuelan economy has long waited for.

He says that the transparent nature of the bitcoin blockchain transactions has the power and appeal to draw huge volume out of the currency black market, which will eventually cause a ripple effect within other aspects of the currency and products market. He says:

“If Bitcoin is used not just for money laundering, but for everyday trading for goods and services, the government will lose the power it has over the people such that the government will not be able to create inflation which happens to be an avenue to steal the wealth from the people. If basic items such as food, medicine, clothing and other regular services can be purchased or paid for in bitcoins, this will strengthen the cryptocurrency.”

What we preach

Randy explained that the philosophy of his bitcoin evangelism is in getting the people really educated on the actual nature and value of Bitcoin as a currency and not just another internet tool to search for ‘free money’.

He says that the people need to understand that Bitcoin can be used to cover their basic needs, and that once they understand its true nature, everyone could use according to their own need. The current trend is, people go directly from knowing nothingabout Bitcoin, or just doing 'pay to click' earnings, tomining, never employing it for services and products.

Mining is profitable in Venezuela because of the very low power price in the country (even free power/electricity). People use the few thousand dollars income they have (per year quota for travel, 100$ online quota, or black market acquired dollars), to buy at least one miner and earn Bitcoins from it, to trade or to save.

According to Randy, he does this and works on making even more with the help of collaborators working as a non-profit organisation, holding talks across the nation and hosting activities on social media.

He also appreciates the high level of reception that him and his team gets from the general public as reflected social media participation.

He also says that they will continue teaching cryptocurrency  fundamentals, and how they can earn bitcoins by selling their products or services either locally or internationally. He hopes to encourage a realisation that they can work and make money (whether online or offline), rather than relying on some non-venturing endeavours which have been encouraged by bad governance of the last two decades.