Bitcoin peer network is in decline: number of network nodes has reached dangerously low levels.
Some causes of this problem (and possible solutions) are:
- There is no monetary incentive whatsoever to run bitcoin nodes. Satoshi just forgot to create some monetary incentive. The number of peer nodes is only around 5,000 which is much less than the number of active miners which is a larger group, in tens of thousands. Ironically even miners who live out of bitcoin do NOT support the bitcoin network and do not run peer network nodes. The current centralization of bitcoin is very dangerous.
- Some solutions to create monetary incentives to run peer nodes are discussed here.
- Other solutions could involve adding proof of stake to bitcoin.
- The current network is such that it is not profitable to handle bitcoin transactions. This is very surprising and needs explanation. Basically miners who include more transactions in their block are penalized by the current network: their block propagates slower in the network. Levin claims that rational miners should reject many transactions (if not all transactions!) because they increase the probability that their block will be discarded which leads to monetary loss. Wicked.
- Happily most miners are not so rational and large blocks are observed on a regular basis, however also blocks without any transactions at all have been observed in the recent past.