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What Incentive do Nano Users Have to Run a Node? (Explained)

One of the most contentious arguments against Nano’s success is that no one has an incentive to run nodes. Here’s why that argument has no merit.

The most common critique people have about why Nano (XRB) isn’t worth its weight in salt (not the coin), is that people aren’t going to run a node out of altruism. Bitcoin gives mining fees to the book-keepers of the network, the miners. Since XRB has no mining, and is a DAG coin (Directed Acyclic Graph), what incentive do people have for running nodes?

How Nano works

Let’s first try and understand what makes Nano so different from every other cryptocurrency – its tech.

The fundamental difference is that, like Stalin era communists, Nano does one thing and does it well. It is a transactional cryptocurrency. No smart contracts or AI neural network tokens; Nano simply wants to be the fastest and cheapest way to transact value between people. To do this, it ensures the following:

  • Every transaction is a block, and each block is asynchronous because every account has its own blockchain. These blockchains sync with each other and maintain the Nano distributed ledger.
  • Only the account owner can modify their own blockchain. This chain will contain the transactions associated with their account.
  • Consensus on which blocks are legit is maintained by weighted Proof of Stake votes on conflicting transactions. Votes are weighted towards holders of Nano, meaning to have significant voting power, you would need to own a lot of Nano.

If there are bad actors creating malicious transactions, and there is a conflict arising between blocks, only then does the consensus voting get triggered. This means not every transaction has to be voted on, saving computational power. Representative nodes with higher account balances are weighted more favourably, giving more incentive to Nano holders to participate in maintaining the ledger. It also weights consensus towards legitimate users and away from malefactors trying to sabotage the network. If you want to take down the network with a 51% attack, you’ll have to have accounts with a lot of Nano. With an ever increasing market cap, that’s a lot of money.

There are many more intricate details about how Nano works and its innovations. Block-lattice data structures, trustless nodes and instant block intervals are all explained by the rather elegant Nano whitepaper.

raiblocks block lattice
Visualization of the block-lattice in Nano. A, B, and C are different accounts. Transactions happen asynchronously.

Why should anyone create a node without any incentive?

First of all, anyone using Nano is already running a node through the Nano wallet. If you’re using a web wallet like Nanowallet, you are essentially assigning your “representation”, or voting power, to one of Nanowallet’s accounts. They do the Proof of Stake voting for you. Anyone with a RaiBlocks account can create another account as their representative – it’s expected, since representative accounts need to be online all the time to verify transactions. When you first create a RaiBlocks account, your representative is assigned to one of the 8 official nodes, maintained by the devs. This is obviously going to change as the network becomes more popular.

Nano needs many nodes to function. More nodes leads to decentralisation, quicker conflict resolution and increased capacity. As the network grows, the consolidation of these representatives will be reversed, and voting power will be redistributed amongst more unique identities.

Nano nodes are quite cheap (and efficient)

For a business to use RaiBlocks 24/7, it will need to have a representative node running 24/7, or be able to pay a service to run it for them. Fortunately, the cost of running a node is very cheap. Estimates suggest it can go as low as $3 a month. You can actually run a node yourself today if you purchase a $2.5 per month VPS (Virtual Private Server) and install a Nano node.

cost of raiblocks node

Cost per transaction is really low too

A redditor recently did some napkin-maths to find that each Nano transaction costs $0.00035 USD, about 100,000 times less than a Bitcoin transaction. This cost is entirely in the electricity and computing power that goes behind doing the Proof of Work. It’s literally impossible to not have this for online transactions.

The cost really isn’t the issue. It’s minuscule in the grand scheme of things. This isn’t the equivalent of a coffee shop paying $30 fees to process a Bitcoin transaction, in a system where the vendor would pay fees.

Business adoption is a cryptocurrency’s gateway to success

Vendors do pay transaction fees for traditional purchases. Typical merchant account companies (Visa, Mastercard, Amex) charge anywhere from 3-5% of all sales made through their credit card channels. For a small business, that’s a cost that can be replaced entirely with the cost of running a Nano node. A small bakery in your neighbourhood could run a 24/7 Nano node to process their online transactions. They could also offer the node as a service to their employees or customers, to have this node become their ‘representatives’, as a way to gain trust in the local community.

What incentive does this small business have to run this Nano node?

  • Save cost on online transactions by reducing the 3-5% merchant fee to a steady, small and invariable fee for running the node.
  • Accept cryptocurrency payments for small ticket and low value items, something that first generation cryptos like Bitcoin, with increasingly bloated transaction fees, have failed at.
  • Offer its node as a Proof of Stake representative as a service to stakeholders (employees, customers, investors) to build goodwill.

Let’s say a small business does $50,000 a month in sales. 5% of that is $2,500, which goes to various transaction merchants. Contrast that with $3 for a Nano node and you see where the inherent monetary incentive lies. Depending on what they sell, if even 5 transactions a month are done on Nano, the node would pay for itself.

Nano needs businesses like these to function, because for any decentralised solution to work, it’s not about trusting a node, but ensuring no single node has too much power. In my opinion, businesses have the most to benefit from what Nano has to offer. The initial vision of Bitcoin as a ‘peer to peer, instant, cheap way to do transactions’ is fulfilled, and companies like Valve can now take another look at the viability of cryptocurrency transactions.

Other business use cases for Nano:

  • A cryptocurrency that’s finally integrated in gaming. Imagine the CS:GO or Dota 2 skin markets, or Runescape gold, but with Nano? The fee-less nature of the tech makes it possible. Decentraland (MANA) uses a similar concept but is an ERC20 token for their VR platform.
  • Websites like Fynestuff that could run their own node for Nano transactions (donation links, even?) for little extra cost.
  • Fully expect Representatives as a Service (RaaS) to develop of Nano takes off. You know the marketing guys are going to do it.

The elephant in the room: exchanges

Let’s not forget the giant cryptocurrency exchanges that power this market. Most of the large nodes that aren’t run by the Nano devs belong to exchanges such as Kucoin or Binance. The future of the network depends on these exchanges, since they handle the Proof of Stake representation for the entire exchange’s user base. Exchanges alone have direct incentive enough to ensure that RaiBlocks/Nano continues to survive.

Still, more incentives are coming soon

There’s also going to be new incentives for people who run a node somewhere down the line, though we don’t know what that will be yet.

Conclusion

Though it’s not very apparent at first, Nano’s trajectory is geared towards success because it puts the onus of book keeping (syncing the blockchain) on the bookkeepers (businesses who use the blockchain) themselves. Bitcoin tried to outsource this and complicated it with difficult Proof of Work mining, leading to environmentalists going mad. Bitcoin mining, in actuality, is very centralised, as are the banks who do regular transactions.

Nano allows those who have a direct benefit from using an instant, fee-less network, to pay for using the network. The fact that the cost itself is minuscule compared to anything on the market is just the cherry on top.

Check out our article on why the Raiblocks to Nano rebrand means great things for its adoption.

Written by Upamanyu Acharya

I founded Fynestuff. I play games, write tech articles and look towards putting Buzzfeed out of business someday. Let's talk about crypto: [email protected]

6 Comments

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  1. Great article! Would you mind writing up a detailed how to create a node on a VPS? I would like to do that to help the community, but couldn’t figure it out. I’m sure a lot of people in the community would do the same, and appreciate it!

  2. So long history short, enabling nodes is not based in altruistic motivation but there is a need for big business for do it in order of can use xrb (or they do it or they can not use it, and they wanna use it) and littler holders can benefit from this need. Am i right ?

    • I would argue that altruism is a major part of it, but that, like you pointed out, businesses both large and small have an economic incentive to run a node. In the long run this economic pressure is useful to create a sustainable ecosystem should altruistic nodes disappear. However the node incentive issue is way overplayed in the case of Nano because, assuming all else stays the same:
      1) As the adoption of Nano rises, the number of nodes rises as well (because there are more people participating in the network).
      2) The number of Nano nodes are currently over 1600+, which is higher than the number of Bitcoin Cash nodes. Even at present day adoption, enough people are running a node out of pure altruism to power the whole network.

      Putting 1 and 2 together, if Node incentive isn’t a problem in the present day, it’s even more unlikely for it to be a problem in the future. Since the node incentive issue is something that doesn’t scale with network effects (unlike scalability of Nano itself), to me it’s almost a nonfactor.

      • excellent comment. also it needs to be added that altruism is not the reason why we have 1600 nodes now. it’s ACTIVISM. thank you. we support nano because we believe in it.

  3. greatr article, congrats.
    the only thing missing (and that would indeed be very interesting for readers imho) is: if there are no fees … how is the nano project making/earning money at all?
    maybe you can explain?

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