Why running a Bitcoin node makes you “your own bank” and why you should run one

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We have many newcomers and many seems to not understand what a bitcoin node is, what power it has, why it is important to run one, why node decentralization matter much more than anything else. I want to share my opinion on why by running a node, you are indeed your own bank.

I invite you to also read [this post](https://medium.com/hackernoon/bitcoin-miners-beware-invalid-blocks-need-not-apply-51c293ee278b). It shows how you can represent the Bitcoin network with visual image and it is nice to understand the technical role of nodes in the protocol. I want to focus on my opinion of the banking function of a node here.

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# What is a Bitcoin node ? What the Bitcoin network does?

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A bitcoin node is a peer of the Bitcoin P2P banking network. It is just that but it doesn’t tell you much so a better question is : **What is a banking network actually ?**

A banking network is a mesh of banks which can emit, transfer and redeem their IOUs that we call a money. Emition is money creation and each banks may follow certain rules to enable such creation for a customer. A banking network allows the customers to transfer the freshly creates (or received) money (which is bank’s IOU) to someone else more or less freely (sometime you can’t, KYC, AML stuff…). Transfers are written in a ledger, which is a trusted record maintained someway by all the banks of the exchanges of the IOU and is what makes this kind of IOU so different from others: the mortgagor (custumers of the bank) can ask the borrower (the banks) to transfer the future repayment to someone else so that the mortgagor pay the latter. Cash is one way to make the transfert, wired payment is another. And the banks can just destroy the money by removing it from the ledger, but better not doing it randomly if you want to keep the custumers using your banking nework (that may explain why burning cash is forbidden..)

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Now the heart of banks policy is this: what truely makes several banks a banking network is the fact that they follow the same rules for money creation, transfer and destruction and they agree on the same ultimate ledger. They are several way to organize such network, lets look at fiat currencies first :

In fiat currencies the network is centralized and it may have a kind of fractal structure: the Central Bank manages the currency ultimate ledger but delegate a part of its power (money creation/destruction and transfer) to private banks through law and banking regulation, each of the banks have there own policy, responsibility in money creation and ledger that they delegate to regional banks desk which manage the policy of local banks. Generally, each level has its own ledger and only net settlements are written to the ledger of the level above. Fiat IOU are often represented by numbers written as amount of your bank account or cash (that only the central bank can print). Finally, when money is created in fiat currency, the banks always created an IOU against another debt IOU’s (the state and private banks debt for Central Banks, customers for private ones), when redeemed, the banks get back his own IOU and can safely destroy it. We talk about “money based on debt”. Fiat currency are today backed by debt. Being fiat rich mean they people have a kind of debt to you a lot (and you may see why inflation is needed in such system since without it, it is impossible to redeem the total of loans interest). During Gold Standard, the Central Bank only created money against gold (but private bank still created money based on debt, this is fractional reserve banking), it was a commodity based money (backed by gold).

So now, what about Bitcoin ? It is a P2P banking network. Nodes are the banks and all nodes follow the same rules. However the network is not at all like fiat currencies: it is peer-to-peer, fully decentralized. This means no nodes has more power than any other node and they all keep track of the same ledger (there is no intermediate ledger like fiat). The nodes check that the supply schedule (the money creation part) is correct, all transactions and blocks are valid and propagate them to other peers if it is the case (the transfer function of the banking network). The IOU of this banking network is the bitcoin token.

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# What makes Bitcoin a banking network ? (and Bitcoin a money)

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Now you may say that my story of “bank’s IOU is money of the banking network” doesn’t fit in Bitcoin since money is never really destroy and no one will give you something in return if you burn them … but I have a way to look at it that makes it coherent.

Bitcoin’s token are destroyed when you pay the transaction fees, they disappear from the ledger, transaction fees are indeed not a payment because you don’t know who you are paying exactly: the protocol force you to give it to the miner who include your transaction somehow. Against this money destruction, you gain a priority score in the queue to write your transaction in the most secure, replicated, immuable database of the world: the Bitcoin’s ledger. Why ? Because we have a rule which say that the miner of a block (which is also like a bank customer who borrows) can claim newly created money at most equal to the new supply schedule of token plus total of transaction fees in the block, so the just destroyed money is immediatly recreated… like any normal bank would wish to do in fact ! In the case of Bitcoin, the money is somehow “hash based” and hash is priced by the network difficulty and priority competition. The banking network exchanges against the hashing power they have to secure the ledger a priority right (incarnated by a bitcoin utxo) with miners to write stuff in the database stored by all nodes that they can transfer if thes wish to do so. The money creation against hashrate is a perfect alignement of incentives: the Bitcoin’s banking network creates the money for the ones who make the ledger going forward. You can check in a block explorer that the miners indeed claim the full reward in the coinbase directly, and the raw data of a transaction have no field “transaction fees”, they are always equal to the unclaimed (=destroyed) bitcoins in the output of the transaction.

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So there you have it: a bitcoin node is a peer of the Bitcoin P2P banking network, a monetary network or settlement network (not a payment network like Visa, you can’t have a loan with Visa, so it is not a bank). A node follows the protocol rules to ensure the network furfill its function: manage a currency that take the form of electronic cash. A bitcoin node is to Bitcoin what a bank is to fiat currencies network but decentralized and with full powers, that’s why we also call bitcoin nodes “full node”. That’s why you are your own bank when you run a node. That’s why you are just a “bank’s customer” if you don’t.

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That’s why if you don’t run a node, you technically don’t have a word to say on Bitcoin rules.

# What if I don’t run a node and mine/own bitcoins ?

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You can mine without having a node, you just have to join a mining pool. The pool uses a node to send you validated transactions you include in the block you are currently mining. In that case, you are trusting the node of the pool and have no way to be sure that the node send you the transactions with the highest transaction fees for example: you are a customer of the node mining pool (which is your bank, you don’t own it if you don’t run your node). This is generally not an issue because the pool is a custodian of mining reward anyway and distribute rewards fairly later, and miners are often running a node for themself too.

When you own bitcoin without running your node, you use a wallet software: “something to store your money” and nothing more. You can spend bitcoins using the wallet software. But the sofware must contact a bank (=a node) to receive and broadcast transactions in the monetary network. Owning bitcoin without running a node is like having a bank account protected by your keys at the big Bitcoin bank, you are not the bank itself so some node you are connected to may spy you (chainanalysis electrum servers), scam you (electrum 3.4.1 scam), censor you and you may not follow a valid chain by simply checking proof of work in case of 51% attack.

# How to run a node then ?

In Bitcoin, we try to make this task as simple as possible. You only have to install Bitcoin Core, the main node software (home page of this subreddit, right panel for a link). But do your own reaseach on how you must set Bitcoin Core for your need because the Bitcoin blockchain is big and your PC will be working a lot for several week potentially to catch the current state of the ledger. This is a time investment, it is ok if you don’t run a node for little amount or if you never transact but running a node will make you learn a lot about Bitcoin.

Learn how to use your node to broacast your transactions at least (`sendrawtransaction` may be your friend here) and notify you when you received money. This way, you are really trusting no one.

Some guide exist to install an always online node on a raspberry pi with many useful tools to use it well (RaspiBolt, RaspiBlitz, mynodes …), if you have skin in the game, those are really cool project which allow you to run a lightning node trustless and many other things !

Enjoy the endless rabbit hole !

View Reddit by Pantamis – View Source

Free Bitcoins: FreeBitcoin | BonusBitcoin

Coins Kaufen: Bitcoin.deAnycoinDirektCoinbaseCoinMama (mit Kreditkarte)Paxfull

Handelsplätze / Börsen: Bitcoin.de | KuCoinBinanceBitMexBitpandaeToro

Lending / Zinsen erhalten: Celsius NetworkCoinlend (Bot)

Cloud Mining: HashflareGenesis MiningIQ Mining

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