First published: 06/01/2022
| Last updated: 01/11/2023
| -- min read
To function reliably and securely, bitcoin depends on the voluntary cooperation of thousands of individuals around the globe. Nodes, which make up the bitcoin network and verify transactions and blocks, play a key role in this effort. If you’re wondering why you should run a bitcoin node yourself, there are many benefits to consider—both personally and for the security and resiliency of the bitcoin ecosystem.
1. Enforce the bitcoin ruleset
By running your own node, you contribute to enforcing bitcoin’s ruleset, which is good for both you and the bitcoin network. The ruleset is a collection of parameters that define bitcoin’s specific properties and processes. Bitcoin’s rules are established by the consensus of bitcoin users and are programmed into its code. Each node coordinates with other nodes to ensure the rules are followed.
Enforcing the ruleset helps uphold the integrity of bitcoin. If there is ever a proposed fork—a change in the rules—with which you disagree, running a node enables you to resist the change and continue to support the existing rules. Conversely, it empowers you as a user to help support protocol forks with which you agree. Taproot is a recent example of a fork activated after broad miner and node consensus.
Enforcing the ruleset also helps protect your investment in bitcoin. Arguably, the most important rule impacting bitcoin’s value is the limit on its total supply. Expressed as an equation and embedded in the bitcoin code, it caps the maximum number of bitcoin at 21 million. By running a node, you contribute to preserving this vital rule which helps protect bitcoin’s fixed supply.
2. Verify received transactions without third parties
By running your own node and connecting a bitcoin wallet to it, you can verify transactions you receive. Running your own node enables this by storing a local copy of the bitcoin ruleset and blockchain which you know to be valid. This lets you independently ensure that the bitcoin you receive are legitimate.
One of the principles of bitcoin, which goes back to before bitcoin existed, is reducing trust in third parties. Though the risk is small, when you use a light wallet, your ability to perform verification is limited and you’re trusting the node(s) it’s connected to. If the light wallet node operator and the sender conspire, they can fool your wallet into believing that it has received bitcoin that it hasn’t.
Additionally, if there’s a chain split caused by a protocol fork and someone sends you bitcoin, you are in your light wallet node operator’s hands when it comes to confirming you’ve received bitcoin from the “right” chain and not tokens from a chain you don’t consider to be bitcoin.
Verifying received transactions with your own node offers you proof that nothing has been manipulated and no transaction you’ve received violates the ruleset. This gives you more control over your bitcoin wealth—removing worry about the integrity or accuracy of verifications provided by others. Verifying your own transactions also helps bitcoin in general because it lessens network dependence on centralized institutions.
3. Improve your privacy
As discussed above, running your own node helps reduce your reliance on third parties, protecting your privacy. Using your own node prevents exposing identifying information about yourself unnecessarily, and your broadcasted transactions are relayed in the same way as any transaction, which helps protect the node’s identity.
Conversely, when you rely on a light wallet, the servers and nodes you’re connected to can see your IP address, all your queries, and therefore, your balances and spending activity. This is in addition to any other information you provided to establish your service (such as email address, phone number, or physical address), all of which can connect you to your transactions and balances.
Whether to rely on a third party represents a trade-off that depends on your use case. In some instances, a trusted third party can offer you significant advantages in convenience and security, such as with collaborative custody, or when engaging in smaller transactions via a mobile phone wallet.
In other scenarios, when privacy takes more precedence, running your own node and connecting a wallet to it helps optimize your privacy because it enables you to query, transmit, and verify your transactions directly and without the need of a third party. As with some light wallets, you can also configure your node to run on the Tor protocol, which further contributes to protecting your privacy by hiding your IP address.
Combining these elements enhances other best practices for privacy, such as:
- Using a new address to receive each payment
- Using separate accounts for different purposes (e.g., daily spending, receiving a salary, savings)
- Being selective with which addresses you make each spend from (known as coin control).
Lastly, if you use block explorers to monitor transactions, you can further enhance your privacy by hosting blockchain data locally, which we’ll cover next.
4. Get local access to blockchain data
Running your own node gives you better access to information about bitcoin and the bitcoin blockchain. There are a couple of powerful tools that help in this regard, the most notable being a locally-hosted block explorer.
Locally-hosted block explorer
A block explorer is like a search engine for the blockchain. Block explorers give you the ability to investigate helpful information such as:
- The status of pending transactions
- Individual wallet address activity
- Daily transaction volumes
- Hashrates and difficulty levels for mining
- Congestion levels on the blockchain
A locally-hosted block explorer is a block explorer that runs on your local copy of the bitcoin blockchain. A locally-hosted block explorer offers you the advantages of speed, verification, and privacy:
- Speed: Local block explorers are faster because they are not limited by bandwidth and run searches directly on your device.
- Verification: They are verifiable because they reference a copy of the bitcoin blockchain that is stored on your local machine, which you know to be updated, accurate, and following the right ruleset.
- Privacy: They are private because, similar to gaining the ability to transmit and verify your own transactions, they remove reliance on third parties who may log your IP address in relation to searches for specific wallet addresses or transaction IDs.
RPC Console
The bitcoin node software includes something called the remote procedure call (RPC) console, which lets you retrieve blockchain data from your own node. This is the same tool that locally-hosted block explorers use as well.
The RPC can process a wide array of commands for retrieving information from your node, one of the most noteworthy being “gettxoutsetinfo”, which allows you to independently verify the total current supply of bitcoin.
5. Help bolster the decentralization of bitcoin
When you run your own node at home, you take possession of a copy of the bitcoin blockchain and ruleset and maintain it at your unique physical location. No one can prevent you from accessing your node or limit your ability to use it. This prevents censorship and contributes to the redundancy of the blockchain while helping improve its geographic distribution. As a result, by running a node, you help decentralize and secure bitcoin.
During its short history, bitcoin has faced several challenges from governments seeking to limit its use and legality. One reason bitcoin survives such restrictions is that the network is distributed across thousands of nodes in every country globally. The geographical breadth of the bitcoin network also protects it from localized hazards such as power outages, storms, earthquakes, war, Carrington events, and other black-swan risks.
Archival nodes vs. pruned nodes
Another important factor impacting the decentralization of bitcoin relates to the different types of nodes. Full nodes can run with either a complete copy of the bitcoin blockchain (i.e., an archival node) or a partial copy of the blockchain (i.e., a pruned node). Pruned nodes take up less file space because they use summary blocks to replicate the complete bitcoin transaction history.
Both types of nodes add value to bitcoin, but archival nodes play a special role because they retain a complete copy of the bitcoin blockchain. They help:
- Increase redundancy of copies of the full blockchain history
- Provide resources for light wallets to connect to
- Bootstrap brand new full nodes on their first sync
- Provide the missing data to pruned nodes when they need it
By choosing to run an archival node, you help reduce reliance on centralized services for such activities, which further contributes to the decentralization and stability of the bitcoin network.
6. Run a Lightning node and open payment channels
The Lightning Network (LN) adds a second layer to bitcoin that adds more functionality to the network—it moves transactions off of the main bitcoin blockchain, enabling faster processing time and lower costs per transaction via peer-to-peer payment channels.
If you want to set up a Lightning channel with someone to start transacting without involving third parties, you’ll need a Lightning node. A Lightning node is best run in tandem with a bitcoin archival full node (although it is possible to set one up without a bitcoin node, there are privacy and security trade-offs).
Running a Lightning node gives you the ability to make fast payments to various retail stores, pay for content online, and receive payments yourself. And if you’re willing to put the time, effort, and capital into establishing your Lightning node as a payment channel hub, you can also support the Lightning Network with liquidity and earn payment routing fees.
7. Increase your bitcoin knowledge
Even if you don’t think you have any immediate need for running a node, it’s good to know the essential role nodes play and how to set one up just in case you need to in the future (e.g., during a controversial fork).
Running your own bitcoin node offers all the advantages outlined above while increasing your knowledge of bitcoin and the key components that make it work. With the knowledge and experience you gain from running a node, bitcoin becomes more useful to you, and you’re able to help others use it as well.
Becoming more knowledgeable about bitcoin also enables you to add value to the bitcoin community. The knowledge you gain from running a node can help you participate in the debate over upgrades—such as Taproot or covenants. As new considerations arise, the knowledge you gain from running a node and understanding its benefits can empower you to make a more meaningful contribution to the conversation.
More helpful resources from Unchained Capital
Discover more about the importance of bitcoin nodes or register to attend one of our live webinars to learn more. In addition to more on the bitcoin basics, you’ll have the opportunity to learn how to save tax-advantaged bitcoin while keeping control of your private keys with an Unchained IRA, or how to take self-custody of your bitcoin while eliminating single points of failure with an Unchained multisig vault.
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