Bending Bitcoin — The Principle of Hard Money

Bending Bitcoin — The Principle of Hard Money

Hard money is one of the most well-known monetary terms used in practical discussions. From political discourses on policy decisions to the commentary debates of the financial sector, the term can be heard often enough to make even the ordinary citizens familiar with it. However, and despite its substantial use, while the concept of hard money has a very clear connotation to traditional fiscal responsibility with the monetary system, its exact definition is still quite vague. While for many, it is merely a practical term almost synonymous to a gold-backed system, its conceptual meaning clearly goes beyond that. For theoretical discussions then, it should be evident that, despite gold being for centuries the most accurate practical representation of the concept, it cannot be its very definition. Until today, in spite of the theoretical merits of adequately defining the term, such exact definition seems to have been quite unnecessary. For a long time, it has been established that assuming it as simply meaning a gold system is sufficient for all practical purposes.

In recent years, however, the term has started being applied to the newly emergent system of cryptocurrencies, and most notably, to Bitcoin. The new employment of the term to describe the new-born monetary system causes an evident confusion as to its exact meaning, and the question of what it is that makes money “hard” has become of practical significance. This current state of affairs has left us with multiple questions. First, what indeed, would be a satisfactory definition for the “hardness” of a monetary system. Then secondly, whether this term could be appropriate to describe Bitcoin. And lastly, if other cryptocurrencies also merit such classification. The rest of this article is thus an attempt to deal with the problems just presented above. As a last note, this article will solely deal with the question of what hard money is. The broader question of whether a hard money system is even desirable in the first place is out of scope for this piece. On that matter, interested readers may find my answer in my previous article.

What is hard money?

While, as said above, no precise and consistent definition seems to be prevalent in discussions on the subject, we must first provide such a definition if we are to investigate the matter seriously. The definition we shall use from this point forward is as follows:

The hardness of money is in reverse relation to the monetary inflation, and the consequent dilution of the value of the existing stock, which can economically be inflicted on it.

Now, there are a few notable points to clarify in order to avoid common misunderstandings regarding the above definition. First and foremost, we shall note that, like many economic terms, the hardness of money is a subjectively perceived factor, subjected to constant changes by various events (such as technological improvement in production, effective counterfeiting, etc.). In this sense, it is similar to discussing the purchasing power of money, which, while can be generally understood, is a rather subjective and ever-changing metric. While this consideration certainly does not invalidate its importance and usefulness, we shall keep in mind these limitations and uncertainties which necessarily accompany its use.

The second point to notice is with regards to what exactly does “can economically be inflicted” mean, and what are the subsequent implications. In simple words, the question is how much of the money can be produced until its value drops (or production costs rise, or both) to such an extent where production is no longer profitable. Here we can notice a sharp distinction between “commodity money”, of which the market determines the supply, and fiat money, of which legislation determines it. As the supply of commodity money is determined by the market demand for it (its price), the costs of its production will always tend to match its market price, as producers will quickly rush to produce more if the margin is larger, and stop production even faster if that becomes unprofitable. On the other hand, the supply of fiat money, such as the government paper we have today, is regulated not by the demand for it, but rather by bureaucratic processes of arbitrary decisions. The main difference concerning us here between the two monetary systems is that, with the former, the risk of dilution of wealth is to be found mostly with technological progress in the production process. While for the latter, there always exists a risk of massive dilution for any arbitrary cause. Thus, while money from the former category is worth the extra effort of looking into its hardness, the latter leaves us no doubt as for its “easiness”. It might be worth mentioning that this monetary easiness is not at all accidental, but rather the intended result of conscious policies aimed mainly at government financing through seigniorage — the monopolistic profits made by the issuer of a currency which is protected by law from market competition. A discussion on the economic and ethical issues of fiat money in general, and seigniorage in particular, is out of the scope of this article. However, interested readers can find such discussions in “The Ethics of Money Production” by Jörg Guido Hülsmann.

A (Very) Brief History of Hard Money

So far, we provided an exact definition for the concept of hard money and saw why it must be commodity money produced through open competition on the market. Now, we will continue investigating the principles of hard money by looking into some historical monetary systems, and the gradual shift from easier monies to a harder one.

The history of money, including such notable examples as salt, seashells and glass beads, is full of cases where the advancement of production processes or even the improvement in trade connections for a certain money, along with its inferior monetary properties (durability, divisibility, etc.) compared to another money, caused it to depreciate quickly and eventually to lose its monetary role altogether. Such a process is perhaps best illustrated through the famous case of the Rai stones of Yap island. These stones, ranging in size (and value) from small beads to some massive 3.6 meters tall ones, were for hundreds, if not thousands, of years used by the native population as money. As the methods for producing them did not improve much for the long time of their monetary use, their production remained quite stable for many years, establishing their local status as hard money. However, with the arrival of Europeans around the end of the 19th century, and with the advanced tools and production methods they brought with them, production became increasingly cheaper and the stones started depreciating rapidly until they eventually lost their monetary role to the Western money system. Similar cases were witnessed at many times and places throughout history, such as glass beads and cowry shells in Africa and America, salt in Europe, and so on.

Since the beginning of their use as money from about 1000 BC, precious metals were probably the most prominent money of all. Used mostly through Europe and Asia as the most common monetary system and later spreading rapidly to all other continents after the discovery of America and under the strong influence of European colonization efforts, the entire world started converging towards a unified monetary system of precious metals, namely copper, silver and gold. The growth in the use of such metallic monetary systems was much due to their relatively excellent physical monetary properties, such as their durability, portability, and divisibility. No less influential, or even more so, was the monetary hardness they demonstrated in comparison to all other monetary goods throughout history. This age-long trend towards the use of metal currency arguably reached its peak around the middle of the nineteenth century. Flourishing as the Gold Standard, which prevailed during La Belle Époque, it has declined since the end of this period around the beginning of WWI. Since then, there has been a strong tendency in the direction of irredeemable fiat money, mainly in the form of paper, “token” coins, and later also its digital representations of today.

This transition from metallic to a purely fiat standard has its origin with the Chinese invention of banknotes, a paper (or similar material) note which the bearer could redeem for specie, on-demand, from a reserve maintained by the producer of the note. The use of such banknotes as a circulating media of exchange began around the 11th century, with the Jiaozi paper currency, and has continually spread around the world ever since. The peculiarity of the practice was of course not with the new physical form which the instrument of payment has taken, but the fact that, although all notes were redeemable on demand, the reserve maintained only a fraction of the funds needed for the redemption of all notes — what is commonly known today as fractional reserve banking. While these paper forms of money were initially privately issued and used mostly for their easier portability (as carrying metal coins became heavy), they were quickly nationalized and served as a new form of a government financing scheme, namely seigniorage, enabled by their cheap production costs and the use of such fractional reserve techniques. A full examination of the history of banking is out of scope for this article. For our purposes the important thing to note is that while the physical form of money started shifting towards paper long ago, today’s concept of permanently irredeemable paper money constitutes a purely modern “invention”. While it is similar in form and probably owes its existence to such ancient practices as described above, it lacks any historical precedent.

It is true that the global convergence towards metallic money, and especially the later transition from metallic to a gold standard, owes a significant part of its emergence to the political influence of governments. However, the massive scale of interventionist measures taken to implement this latest transition to a completely irredeemable fiat standard is entirely unprecedented. Arguably starting with WWI, consolidating with the end of WWII, and ripening with Executive Order 11615 of President Nixon in 1971, the transition from a metallic to a pure fiat money has nationalized and politicized the global monetary system in any conceivable aspect. The consequence is a regression in the evolutionary tendencies of money from that of international convergence on the hardest money to a degradation towards the cheapest production methods, which will generate the highest seigniorage profits possible to extract for each national government. Thus, we are not surprised to find out that the last hundred years have experienced over 50 cases of hyperinflationary economic collapses. What used to be an extremely rare event has become an epidemic of modern economies, and is now virtually the only check which deters governments from excessive money production.

To briefly summarize, the history of money shows us a tendency for international convergence of monetary standards towards the hardest money. This tendency likely reached its peak with the nineteenth-century gold standard, and has been suppressed for the last hundred years by political forces compelling the use of the easiest money — that which can be infinitely created at their whim. While the trend towards hard money seems to have completely reversed, the great economic distress and instability arguably caused by this reverse in trend may indicate its mere temporary nature. Thus, there appears to be a strong reason to believe that these last hundred years will be but a short regression in the long trend towards harder money.

Nevertheless, this last century left us little hope that such a return to progression could manifest itself as a return to a gold standard. With the transition to global online payments, the need for a centralized trusted reserve for the smooth operation of such a system has grown more evident than ever. Yet this very need for a centralized reserve system is precisely the flaw that allowed the political capture and eventual demise of gold in the first place. Also, taking into account the immense expansion in the power of governments worldwide during the last few decades, the risks inherent in such a centralized reserve system make a return to gold seem like an impractical option, however theoretically desirable it may be. Despite the obstacle posed by the closing of this past option, the advancement of technology has opened up a new alternative in the form of Bitcoin, a digital adaptation of hard money. If it indeed provides a secure alternative, such a system has a true potential for becoming the next evolution in monetary standards, continuing the old trend towards harder forms of money. It is investigating this premise to which we will now turn.

Bitcoin as Hard Money

In a nutshell, Bitcoin was built to have a final and limited supply, produced by open competition for expending computational power. It is by design limited to a total supply of roughly 21M bitcoins to be produced according to an estimated time schedule. The production of new Bitcoin requires solving a cryptographic puzzle, with each competitor having the probability of solving it in direct relation to its expended computing resources. We see that, by theoretical design, Bitcoin was designed to be hard money, with an eventual hardness allowing for no further production, in a sense, creating absolute scarcity. While we now have the basic understanding needed of the theoretical guarantees of Bitcoin in regards to its monetary hardness, we must proceed to look at how those guarantees are to be secured in practice, and what possible threats may arise for them.

The monetary hardness of Bitcoin is guaranteed by its consensus rules — the code that either accepts or rejects transaction history (in the form of blocks) according to their validity with this predetermined set of rules. These rules include, among other things, the requirement for a solution to the cryptographic challenge (the proof of work), a verification ensuring no transaction spends more bitcoin than its sender has, and a check that no bitcoins were issues over the supply limit or before the predetermined schedule. Every machine which has verified all the transaction history up to the present, and which maintains as the result of this verification the present UTXO set (the current set of owners of bitcoins), is called a full node. The entire “Bitcoin network” is the sum of all full nodes communicating by the same protocol rules and propagating information about new data (mainly blocks and transactions). By following identical rules of verification, and by passing all data between themselves, all nodes are expected to reach the same view of the current state — a consensus.

There are two possible ways by which nodes may reach a disagreement over the present state — by having different (or partial) data or by verifying according to different consensus rules. The former case is usually not an issue. It includes mostly nodes in the process of joining the network (in IBD), nodes which have not yet received a new block, and on rare occasions, the case where two conflicting blocks are solved independently of one another and are propagated at the same time. This area of data propagation, while being highly critical, does not concern the monetary hardness of Bitcoin per se, and thus we’ll ignore it for the present discussion. The second possible case — the establishment of different consensus rules — is where the risk of inflation lies and is what we will now examine.

Strictly speaking, there are no “definitive” rules for Bitcoin. There are, for example, the original rules of the first version of the Bitcoin software, and the rules of the current Bitcoin Core software, but since Bitcoin is an entirely decentralized project, there are no rules one has to follow. This essentially means that (for convenience, taking the most unlikely yet still technically possible case) if all participants in the Bitcoin network were to unanimously modify their rules, for example, as to have permanent inflation, these would become the new rules. There exists no controlling authority which could stop users from running whatever version of the software they desire. This characteristic of Bitcoin, which is inherent in its nature as a man-made digital asset, is probably its most significant difference from the natural commodities, such as gold, and thus requires great attention in assessing the practical hardness of Bitcoin.

To understand what guarantees the hardness of the monetary policy and other consensus rules of Bitcoin, we should start by analyzing the network, not as a whole, but starting from the very individual nodes comprising it. As far as a full node is concerned, its control over the rules — the “definition” of Bitcoin — is absolute, there is no procedure to compel a node to use a particular set of rules. On the same token, it is also the case that no node can force another to accept its rules. Thus we arrive at a situation where, starting with the initial consensus rules laid out in the first Bitcoin software as base guidance, all nodes in the network must either converge on the same set of rules or lose the ability to transact with the rest of the network. If a node decides, for example, to mint itself new bitcoins “out of thin air”, he may change his own rules as to allow that, but at the cost of losing the ability to transact his “Bitcoin” with the rest of the network. If we assume two people have modified their rules in that way, they give up the ability to transact with all but one another. The same thing happens if we now imagine that 10% of the participants changed their nodes to the new rules, the network can be said to have split into two distinct networks, each defining Bitcoin in a different way.

While such cases as described above are of little interest, they beget the question of what happens if 50%, or even say 99% modify their rules. In other words, what happens if the majority changes the rules, and what would define a majority in the first place. With Bitcoin, being essentially a communication network, the most appropriate manner to determine a “majority” is to consider the extent to which participants can communicate (transact) with others. Contrary to common fallacies, it does not matter how much hash rate, market cap or total transaction volume a network may have and even less so does it matter how many nodes run its rules (as anyone can deploy as many nodes as he wishes). The only metric which is relevant for the determination of which rules a node joining the network “should” run is to what extent it can transact with others. In simpler terms, how many of those with which he wishes (or expects) to transact with will accept his bitcoins as valid.

The threat of being unable to transact with others (running incompatible rules) is what deters participants (both other nodes and miners) from arbitrarily modifying the rules. The need for such extensive coordination is what makes changes to Bitcoin, from trivial bug fixes to the most controversial changes, so difficult to implement. Any modification means risking losing the ability to transact with the rest of the network (or part of it). Thus the theoretical ability to exercise such modifications is rarely used. To get back to our subject of monetary hardness, what is most important to understand is that the hardness of Bitcoin for each participant depends on the ability and likelihood of a sufficiently large portion of the network to coordinate and successfully perform a consensus rule change which will inflate the supply of Bitcoin. It is important to emphasize that “sufficiently large” means such a large portion with which losing the ability to transact would render Bitcoin useless. This measure, like the rules of Bitcoin themselves, is by necessity subjective, but it should not be hard to have a rough agreement on what such a case would look like.

Bitcoin’s Soft Spot

As we have seen by now, since each user of Bitcoin can run his own node, the power of a participant in the influence over the enforcement of the consensus rules is solely with regard to the transactions he is personally involved in. A node must verify all transactions not for the sake of enforcing the rules for others on the network, but for being able to determine whether a payment he receives himself is valid or not — this is the economic activity of a participant, and it is the only manner by which he may influence the decision of others to use certain rules. Whenever one accepts payment in Bitcoin, it’s akin to asserting what the definition of Bitcoin is by enforcing the consensus rules under which the payment is accepted.

However, while in our analysis until now we have (intentionally and implicitly) assumed that every participant is actively setting his own rules by running certain code with his full node, and using it to verify the validity of incoming payments, this is not necessarily (and indeed is often not) the case. It is completely possible for anyone to delegate the responsibility of this active rule setting by passively trusting another entity with validating transactions for him. By doing so, the receiver of payment in a sense delegates his economic activity on the network, thus the influence over the consensus rules, to another which in turn may use it with whatever rules he likes. For example, assuming I am using an online Block Explorer to verify that I have received a transaction, whenever I accept a transaction in such a manner, I delegate the influence my economic activity may have over the rules to the operator of that service. If, for example, the operator would decide to use rules allowing larger blocks, new signature schemes or (more worrisome) changing the rate of inflation, I am not only susceptible to passively accept these changes against my consent, I am in fact actively endorsing them by signaling my willingness to accept transactions using these specific rules.

In the previous section, we have concluded that in order to impair the monetary hardness of Bitcoin, it is necessary to coordinate (convince others to perform) a consensus rules modification causing such a change with a sufficiently substantial portion of the active economic participants of the network, a task we can consider quite impractical in light of both theoretical considerations and practical (although short and insufficient) experience. This difficulty in coordination is not merely due to the decentralized structure of the Bitcoin network, but specifically due to the decentralized, or more correctly self-sovereign, enforcement of rules over individual economic activity. When each participant is actively validating his transaction, it is necessary to convince a very considerable part (if not almost all) of them to accept the new set of rules modifying the hardness of Bitcoin. However, the fewer participants actively validating their transactions, the more centralized does the verification of economic activity becomes, and thus the easier it is to carry out such a change.

Although, in theory, nothing prevents the use of a full node by each participant, there are various practical obstacles for running and using a full node. Probably the most significant of these obstacles is the technical complexity of operating such a node, which for many is still a very non-trivial task. Moreover, there are the issues posed by the size of the transaction history data, which when increased affects both the initial time needed to join the network, while also raising the hardware requirements needed for an active node, making it increasingly more expensive to maintain. These issues (and potentially various others), while probably manageable, can, if left unhandled, lead to such dangerously large centralization of payment verification which could potentially nullify the monetary hardness guaranteed by the theoretical design of Bitcoin.

The greatest risk to the hardness of Bitcoin lies therefore in the centralization of payment verification. We see that in theory, if a sufficiently large part of the network is using just a few service providers for validating their transactions, there is a chance that these service providers will coordinate a change to the supply of Bitcoin while having the unaware but nonetheless economically active support of everyone using them to accept Bitcoin payments. It is true that as long as you run your own full node you are able to stick to the present “hard money rules”, but if such a large part of the network has moved (aware of the change or not) to an inflationary set of rules, you will lose the ability to transact with them and thus the utility of using Bitcoin. Before reaching our conclusions on the hardness of Bitcoin, we should address the question of whether other cryptocurrencies may be termed hard money, and what differentiates Bitcoin from all of them.

What about “Shitcoins”?

Contrary to constant claims from almost any “blockchain-based” shitcoin, none of them can be considered as hard money. While there are many different implementations for how a decentralized blockchain may work (PoW/ PoS, etc.), they must all rely on the same client-side payment verification model discussed above. However, unlike Bitcoin, they all either merely pay lip service or even disregard completely the importance of self-sovereignty in determining the consensus rules. That is, they all tend towards centralizing the formation and enforcement of the consensus rules. Some projects have some sort of central authority, to which, with little exception, most decisions on the rules are delegated (whatever explicitly or implicitly). Others disregard the necessity of keeping the ability to run a full node as accessible as possible and thus lead to centralization in payment verification. And yet others which try to set up a “governance” process — making arbitrary changes to the consensus a matter of formality.

I should emphasize that I’m not speaking of all “blockchain projects” or projects with decentralized governance. What I’m speaking against is the often-heard claim of various tokens that they should be considered as hard money, while in practice, their supply can and regularly is arbitrarily altered. As defined above, the hardness of money is in reverse relation to the monetary inflation which can economically be inflicted on its holders. With such digital assets that either rely on a centralized (or semi-centralized) payment verification or have some clear and simple process for modifying the consensus rules, there cannot be even the pretense of being hard money. The potential inflation which could be inflicted upon them is infinite — once you can modify the “monetary policy” of a digital asset, there is virtually no limit to how much you can create from it, and it cannot be considered a harder money any more than any of the fiat monetary systems.

There is no claim here that the current state of Bitcoin is perfect, or anywhere near that. There is of course much undesirable centralization of verification in the space of Bitcoin as well, and even more concerningly, there is a great sentiment of ignorance of the importance of such self-sovereign verification. However, the main difference is the insistence of Bitcoin “activists” on promoting the use of full nodes, such examples being the Core developers’ efforts on keeping nodes usable on even such weak and affordable machines as a Raspberry Pi, and the many projects which provide various options for running a full node, from a plug and play machines to a completely DIY solutions. The ecosystem dedicated to promoting and simplifying the use of Bitcoin full nodes is both very significant and rapidly growing, and the community’s emphasis on this subject is unmatched by any other project.

Furthermore, and no less important, is the fact that, being the “first of its kind”, Bitcoin serves as the base consensus rules not only of a single asset but of general digital value transmission. As Bitcoin is in principle a protocol, or even (in its most basic sense) an idea, for “A Peer-to-Peer Electronic Cash System”, and since its rules are, as we have seen, determined individually and independently by its users, it means that in some sense, all other implementations of such a system could be seen as versions of Bitcoin, but with a completely modified set of rules. With that taken into account, the mere fact that these other “Bitcoins” have such a different set of rules and a substantially different monetary policy, signals the relative malleability of their rules — which have disconverged from the original base rules in a very incompatible manner and for no real (monetary) reason (such as an emergency change due to a bug). We may say that these other coins, being a mere replication of Bitcoin’s model, at least in the monetary field, have already proven their lack of hardness by their mere creation as an arbitrary divergent from the main Bitcoin protocol. All those coins might very well have significant differences from Bitcoin and various other “use-cases”, but with regards to being a hard money system, they have all started at a loss against “The Bitcoin Standard”.

On Bugs

Before concluding our discussion, there are few remarks which still need to be made. First, while until now we have discussed the hardness of Bitcoin as derived from enforcing its coded rules, we must note another caveat. Bitcoin is a software, and like any software, it can and did (and possibly still does) have bugs. While it’s true that such bugs could cause unexpected inflation, they are unlikely to have any serious impact on the hardness of Bitcoin.

To understand why, we may divide the possible inflationary bugs into minor (1, 10 or even 100,000 bitcoin — like could happen with CVE-2018–17144) and major ones (like a 184 billion coins inflation). Minor bugs may indeed introduce some inflation, which technically would undermine the core tenet of limited supply, but since they can be quickly fixed, their effect on the total supply will be effectively inconsequential in the long run. In more popular terms, they may increase the stock of Bitcoin to a small extent, but they do not undermine its guarantees as for the upcoming expected flow of new coins.

As for major bugs, while potentially undermining the interim confidence in the success of Bitcoin, the retroactive countermeasures which could be implemented to nullify the effects of such a clear violation of the constitutional precedent of limited supply would be successful in preserving Bitcoin’s creed. Such measures would be absolutely necessary to preserve the value of the coin-holders and the utility of the network itself. In fact, this is precisely the course of events that transpired in the wake of such a catastrophic bug in 2010. As we have concluded previously, the lack of malleability of the rules of the network contributes to its hardness as a monetary medium. However, here, it is apparent that the literal opposite is true as well; it is the ability of the network to evolve to protect users by way of them each acting individually in their own self-interest that defends the 21 million hard cap.

Conclusions

Throughout the article, we have discussed the basic principle of hard money and how it relates to Bitcoin. We saw that from the theoretical aspect, the usual description of Bitcoin as “the hardest money ever” is well deserved, but from the practical perspective, the soundness of this statement is to a large extent dependent on the exercise of their self-sovereignty by its users — the use of full nodes for validating and accepting transactions.

Run a Full Node!

For the hardness of Bitcoin, it is necessary that as many economic participants as possible use their own full node. However, far more important than this “collective” necessity of self-sovereignty, there are the “individual” reasons to run a full node.

As said above, when you don’t verify your own transactions but trust another party to do so, you blindly accept whatever definition that party may use for what Bitcoin is. It may very well be that they verify transactions by rules incompatible with most other network participants. Furthermore, they might not be truly verifying anything at all, and just arbitrarily present to you fake data. It is of course very unlikely, at least at this stage of Bitcoin, for established service providers to risk losing their customers by providing them with incorrect or misleading data (although we have already seen such cases, mostly with the Bitcoin Cash and Segwit2X cases). It may very well be fine to occasionally use the assistance of such services, especially for small payments.

The main thing to remember is that by delegating verification of payments, you open yourself to significant risks, while also potentially weakening the hardness of the rules of Bitcoin. I would not discourage the use of such services altogether, but for those using Bitcoin either frequently or with large amounts, as well as for anyone who cares about their privacy and wants strong security, I would highly recommend to make this effort and find a self-sovereign full node solution which suits their needs. (See below for guidance for that).

Although commonly heard, the advice to use a full node cannot be stressed strongly enough, it is a crucial part of using Bitcoin — as without using a full node, you cannot even know if you’re really using Bitcoin.

How to Run a Bitcoin Full Node

Up to this point, we dealt with the fundamental question of why run a full node. Now, it is time for us to move to the no less important question of how to run a full node. But first, let’s start by clearing a few popular misconceptions as to the requirements needed for running a full node. As for today, the minimum disk space required to operate a Bitcoin full node is no more than 10GB. For an illustration of how small that is, you can find a 16GB SD card for less than 4$. Most smartphones today already come with at least 32GB, and for many, it is possible to add more with such SD cards. It is true that storing the entire history (~300GB as for today) is much preferable, but this is not necessary for running a secure and fully verifying full node, and should not be an excuse not to use one.

Another important misconception is an alleged need for strong computing power, this misunderstanding usually comes from the confusion between a Bitcoin miner and a full node. It is true that in order to run a (profitable) Bitcoin mining operation, it is necessary to have some expensive specialized hardware, but this is not necessary at all for running a full node. To run a full node you can use as little as a mere Raspberry Pi, or simply your personal computer or smartphone.

The last thing to note here is the alleged complexity of running a full node. It must be admitted that for now, running a full node is probably not something your grandma will be able to do, but so wasn’t, and still isn’t for many, using a smartphone or a web browser. While in the present time it is certainly easier to use a web browser than running a full node, we should remember that for now Bitcoin is a not only new, but brings a completely new paradigm for using money. The invention of implementing Bitcoin itself was for decades considered an impractical challenge. Compared to that, the challenge of building an ecosystem of user friendly full node solutions is exceedingly minor. The fact that we’ve gotten so far makes me quite confident that the challenge of creating a user-friendly full node will not be a true obstacle. It is also conducive to look at how greatly the simplicity of using a full node has already improved during these last 10 years. Without having any budget whatsoever, depending on the voluntary contributions of people alone, dozens of solutions have already been created for various different audiences.

Here, I will list a few of the present options. As I cannot guarantee otherwise, I must note that this list might contain imperfect options, and does not substitute for doing your own research in regards to the quality and integrity of the services.

Probably the simplest solution for anyone familiar with the basic use of a computer is to use the Bitcoin Core software. While its interface is not the best, it is simple to install and use, and is the most common Bitcoin software. For more information see the links below:

  • Bitcoin Core official Download page
  • bitcoin.org Full Node Guide

Another option is to use Bitcoin Core through another app. There are few such services which will install and set up Bitcoin Core for you. These might not necessarily be simpler than the normal Bitcoin Core install, but they all offer more features, such as Tor support/ Lightning Network setup/ Coin mixing and other useful features.

  • Node Launcher — Bitcoin and Lightning one-click setup tool, including useful Lightning tools and guides.
  • Wasabi Wallet — Bitcoin wallet with built in Bitcoin Core automatic installation, CoinJoin mixing, and hardware wallet integration.
  • Bitcoin-Standup (warning: still in early beta) — MacOS (possibly Linux soon) tool for setting up Bitcoin full node and includes tools for remotely connecting through a mobile app over Tor.

For the less tech savvy users, a “plug and play” full node might be the best solution. These cost generally between 200$ to 500$, but they come with all the hardware, many great features, and generally much more user-friendly design.

  • Nodl — Includes a Bitcoin full node and one-click support for various features such as Lightning node, Tor and BTCPay server (also available with Samourai Dojo support here).
  • Casa Node — Bitcoin full node which comes with a user-friendly UI, full Lightning support and built in integration with other Casa products (such as a lightning mobile wallet and membership for their multi-sig wallet).
  • RaspiBlitz — Raspberry Pi based Bitcoin full node with Lightning integration.
  • MyNode — Similar to the Raspiblitz with a slightly more user-friendly interface and integrated features like a Blockexplorer and Electrum Server for Hardware Wallet support.
  • Lightning In A Box — Bitcoin and Lightning node with BTCPayServer pre-installed and configured.
  • BTCPi — A cheaper version similar to and sold by Lightning In A Box.
  • BitBoxBase (not yet released) — Bitcoin full node includes a hardware wallet secure element, user friendly wallet, a Lightning node and Tor support.

For those technical users who likes to get their hands dirty (or just want to save money building their own node):

  • RaspiBolt — A step-by-step guide for creating a Bitcoin full node with Lightning support using low-cost components.
  • RaspiBlitz — The DIY version of the RaspiBlitz. Should cost about ~150$ for the hardware parts while giving the same results as the pre-built option.
  • MyNode — Similar to the RaspiBlitz again which lets you build your own node from ordered parts. The basic software is provided for free but can be upgraded to paid premium with one-click upgrades for more features.
  • RoninDojo — DIY Samourai Dojo with Bitcoin full node, Tor, and Whirlpool coinjoin support.

There are also several mobile Bitcoin full node options:

  • ABCore — Android app with a Bitcoin full node, uses Bitcoin Core and provides an interface for using it as an Android app.
  • HTC Exodus — An HTC Android phone with a built in Bitcoin full node, a hardware wallet TEE element and more related features.
  • As for today, there is no iOS compatible way to run a full node Bitcoin. However, the app Fully Noded allows you to connect to your node remotely and use it on iOS.

A note on key management:

It is important to note that while many of the solutions presented here provide the user with a Bitcoin wallet, many are using (either only or by default) a “hot” wallet, i.e. a wallet stored on a machine connected to the internet. This is considered a relatively insecure practice. Many users therefore opt to use hardware wallets (such as Trezor, Ledger, and ColdCard). Though (at least considered) much more secure for key management, the benefit derived from using such hardware wallets is significantly impaired if they are not used along with a full node. While most hardware wallets don’t provide a (simple) integration with a user’s full node, there are complementary solutions developed to provide such support.

  • Bitcoin-Core HWI — A UI for interacting with many types of hardware wallets while connecting them to Bitcoin Core for verification.
  • Electrum Personal Server — Allows the integration of Electrum wallet with a Bitcoin full node. Supports various features including hardware wallet integration, multisig wallets etc.
  • YetiCold — (warning: still in beta) A self-sovereign, easy to use, multisig setup protocol aimed at minimizing trust and various attack vectors.

Special thanks to Ben Prentice (mrcoolbp), Bezant Denier (bezantdenier), Daniel Wingen (danielwingen), The Bitcoin Observer (festina_lente_2), Thib (thibm_), Simon Lutz (simonlutz21), and Stefanie von Jan (stefanievjan) for all the feedback I received from their reviews, comments, and suggestions which helped me shape this article.


Bending Bitcoin — The Principle of Hard Money was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.