EVG101 Part 2: Who is behind Bitcoin?
Welcome to Part 2 of Everest’s crypto and blockchain guide! In this article, we will explain the different players who participate in Bitcoin and see why it is truly decentralized.
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Table of Contents
- Who are the different stakeholders in Bitcoin?
- Who created Bitcoin? Who maintains Bitcoin?
- What is a node?
- What is a miner?
- How hard is it to become a node or miner in Bitcoin?
TLDR;
Let’s get straight to it!
1. Who are the different stakeholders in Bitcoin?
A quick overview of the different types of actors in Bitcoin to set the foundation for this article:
- Node
- Miner
- Users who send and receive transactions in Bitcoin (merchants, customers, P2P users)
- Developers
- Bitcoin Foundation
Node
- A node can either be a full node or a light node.
- A full node downloads, updates, and verifies a copy of the entire blockchain.
- A light(weight) node downloads, updates, and verifies a truncated copy of the blockchain instead of the full blockchain.
Miner
- Runs a full node.
- Miners validates Bitcoin transactions, grouping them into blocks and adding them to the blockchain.
Users who only use Bitcoin to send and receive transactions
- Users who use Bitcoin only for sending and receiving transactions include customers and merchants who transact in Bitcoin, and people who simply want to conduct P2P (peer-to-peer) transactions in Bitcoin. They usually use Bitcoin wallets to do this.
- Bitcoin wallets are often light nodes since they require information on the blockchain but it is not feasible to download the entire blockchain as it is too big.
- Light nodes are a type of node which download only a small subset of the blockchain and rely on other (trusted) nodes to get updates of the blockchain.
Developer
- Developers write new code and fix bugs in Bitcoin’s code. This includes developing new features such as scalability solutions for Bitcoin.
- Developers for Bitcoin are volunteers: Bitcoin is an open-source project.
Bitcoin Foundation
- Pays some of the core developers so that they can work full time to develop the software.
- Promote the development and uptake of Bitcoin.
- Represents Bitcoin’s interests to governments and organizations. Its status as a centralized entity has been heavily criticized by the Bitcoin community. It wields limited influence in the Bitcoin network.
2. Who created Bitcoin? Who maintains Bitcoin?
Bitcoin was created by Satoshi Nakamoto, a pseudonym that no one has been able to conclusively connect to any actual persons or organizations. The only traces Satoshi left were through his creation, Bitcoin, and his posts and emails on the Internet. Satoshi vanished from the Internet in 2011. Various people and entities have been accused of, or claimed to be Satoshi but each one of these claims have been debunked. To this day, no one knows the actual identity of the person(s) who created Bitcoin.
Who maintains Bitcoin?
Bitcoin is an open-source project which anyone can contribute to. Although there are some developers who hold more influence due to their experience and history of contribution, anyone can contribute to the project by reviewing code or submitting proposals to change the code. The open-source and meritocratic nature of Bitcoin development is one way in which Bitcoin remains decentralized.
In a sense, Bitcoin is maintained by the nodes and miners which store, update, and broadcast copies of the blockchain locally. They ensure that the Bitcoin ledger exists in a decentralized form so that even if any nodes or miners go offline, others can still reliably access the blockchain. Without nodes to broadcast and share the blockchain with other Bitcoin users, the Bitcoin network doesn’t exist.
Bitcoin is decentralized because no one group of actors possesses the majority of power in the network. Nodes and miners are reliant on developers for fixing bugs and improving network performance. Developers, despite being the ones who write and deploy the code, require support from nodes and users. If users do not agree with the implementation of Bitcoin pushed out by developers, they can simply stick to the previous version and freeze out the developers. Such break-up is commonly known as fork, which we will explain in subsequent parts. This serves as a system of checks and balances which helps to ensure the quality of the Bitcoin network.
3. What is a node?
As mentioned above, a node is either a light node or a full node.
The role of a full node in Bitcoin is to download and maintain its own version of the complete Bitcoin blockchain, verify the transactions on the blockchain, and update the version of the blockchain they have once a longer version of the blockchain is available on the Bitcoin network. Nodes provide fault-resistance: even if one node goes down, there are many other nodes left from which the blockchain can be accessed. This makes the Bitcoin network more secure and reliable.
A light node, on the other hand, does not help to secure the Bitcoin network. A light node does not download the complete blockchain. It only downloads the block headers to validate the authenticity of prior transactions so that the entity running the light node can make valid transactions.
A light node depends on other full nodes to provide information on the blockchain and transactions. Therefore, a light node is less secure than a full node. If the full nodes providing information to a light node are compromised, then the light node is susceptible to fraudulent transactions.
Requirements for running a node
The requirements to become a full node of a blockchain depends on the specific blockchain itself and the consensus protocol it runs. Some blockchains might require you to hold a certain number of its tokens to be a node on its network, such as in the case of a proof of stake consensus protocol. In Bitcoin however, anyone with an internet connection and enough hard drive space can run a full node.
Why run a (full) node?
There are two main reasons for running a full node:
- Security: Wallets / light nodes have to trust other nodes as a source of information. The information they receive thus may or may not be fraudulent. Entities running full nodes download the entire blockchain and can ensure for themselves that all transactions are valid. For entities dealing with large amounts of bitcoin, it is important to verify transactions to minimize the risk of any transactions they are involved in.
- Privacy: A wallet, which is a light node, is developed and maintained by a service provider. Using a wallet means that you are dependent on 3rd-party servers to broadcast your transactions, which allows service providers access to the data contained in your transactions (your addresses, transaction amount etc.). This can be connected with information you’ve provided to the service provider (your email, for example). Running a full node allows you to broadcast your own transactions and maintain your privacy.
4. What is a miner?
In addition to doing everything a full node does, a miner also validates pending transactions and adds them as a block to the blockchain. People are incentivized to mine bitcoin because miners receive bitcoin as reward for successfully adding a block to the blockchain. Miners also receive a transaction fee paid in bitcoin for each transaction validated.
The process of creating a valid block of transactions to add to the blockchain is known as mining. We will talk more about mining in the next part of our guide.
5. How hard is it to become a node or a miner in Bitcoin?
Theoretically, anyone with a computer can become a node in the Bitcoin network. All they need to is to download a piece of software released by Bitcoin developers and configure their network settings so that they can download the blockchain, sync with it regularly, and broadcast to other nodes.
However, in practice, becoming a node is no simple task due to the amount of space needed to store the growing blockchain (currently at ~250GB and growing).
Likewise, the technical requirements for mining Bitcoin are not high. Anyone who is a full node in the Bitcoin network can mine Bitcoin. However, Bitcoin mining has become increasingly competitive and sophisticated with specialist mining companies like Bitmain raking in millions of dollars in profits. Therefore, mining Bitcoin has become an unrealistic venture for the average person due to the computational power needed to reasonably compete in the mining competition.
Major mining groups have moved to countries or cities with cheaper electricity costs to mine Bitcoin. Mining costs per bitcoin range from USD$531 in Venezuela to USD$26,160 in South Korea. For comparison, the average cost of mining a bitcoin in China is USD$3,172 compared to USD$4,758 in the United States. (Source: Elite Fixtures)
Cost to mine Bitcoin in various countries:
- China (USD $3,172)
- USA (USD $4,758)
- Singapore (USD $5,936)
- Hong Kong (USD $7,930)
- Japan (USD $8,723)
Concluding Remarks
In this article, we touched on the different players in Bitcoin and their motivations for being a part of the Bitcoin network. In the next article, we will dive deeper into the mechanics of how Bitcoin transactions work.
We see this guide as a continuous work-in-progress! Please leave any questions or remarks in the comments section and we will try our best to include them in updated versions of our guide. And if you found our guide useful, please leave some claps!
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