[[bitcoin_network_ch08]]
== The Bitcoin Network

=== Peer-to-Peer Network Architecture

((("Bitcoin network", "peer-to-peer architecture")))((("peer-to-peer
(P2P)")))Bitcoin is structured as a peer-to-peer network architecture on
top of the internet. The term peer-to-peer, or P2P, means that the
computers that participate in the network are peers to each other, that
they are all equal, that there are no "special" nodes, and that all
nodes share the burden of providing network services. The network nodes
interconnect in a mesh network with a "flat" topology. There is no
server, no centralized service, and no hierarchy within the network.
Nodes in a P2P network both provide and consume services at the same
time with reciprocity acting as the incentive for participation. P2P
networks are inherently resilient, decentralized, and open. A preeminent
example of a P2P network architecture was the early internet itself,
where nodes on the IP network were equal. Today's internet architecture
is more hierarchical, but the Internet Protocol still retains its
flat-topology essence. Beyond Bitcoin, the largest and most successful
application of P2P technologies is file sharing, with Napster as the
pioneer and BitTorrent as the most recent evolution of the architecture.

Bitcoin's P2P network architecture is much more than a topology choice.
Bitcoin is a P2P digital cash system by design, and the network
architecture is both a reflection and a foundation of that core
characteristic. Decentralization of control is a core design principle
that can only be achieved and maintained by a flat, decentralized P2P
consensus network.

((("Bitcoin network", "defined")))The term "Bitcoin network" refers to
the collection of nodes running the Bitcoin P2P protocol. In addition to
the Bitcoin P2P protocol, there are other protocols such as Stratum that
are used for mining and lightweight or mobile wallets. These additional
protocols are provided by gateway routing servers that access the
Bitcoin network using the Bitcoin P2P protocol and then extend that
network to nodes running other protocols. For example, Stratum servers
connect Stratum mining nodes via the Stratum protocol to the main
Bitcoin network and bridge the Stratum protocol to the Bitcoin P2P
protocol. We use the term "extended Bitcoin network" to refer to the
overall network that includes the Bitcoin P2P protocol, pool-mining
protocols, the Stratum protocol, and any other related protocols
connecting the components of the Bitcoin system.

=== Node Types and Roles

((("Bitcoin network", "node types and roles",
id="BNnode08")))((("Bitcoin nodes", "types and roles",
id="BNtype08")))Although nodes in the Bitcoin P2P network are equal,
they may take on different roles depending on the functionality they are
supporting. A Bitcoin node is a collection of functions: routing, the
blockchain database, mining, and wallet services. A full node with all
four of these functions is shown in <<full_node_reference>>.

[[full_node_reference]]
[role="smallerfifty"]
.A Bitcoin network node with all four functions: wallet, miner, full blockchain database, and network routing
image::images/mbc2_0801.png["FullNodeReferenceClient_Small"]

All nodes include the routing function to participate in the network and
might include other functionality. All nodes validate and propagate
transactions and blocks, and discover and maintain connections to peers.
In the full-node example in <<full_node_reference>>, the routing
function is indicated by an orange circle named "Network Routing Node"
or with the letter "N."

((("full-node clients")))Some nodes, called full nodes, also maintain a
complete and up-to-date copy of the blockchain. Full nodes can
autonomously and authoritatively verify any transaction without external
reference. ((("simple-payment-verification (SPV)")))Some nodes maintain
only a subset of the blockchain and verify transactions using a method
called _simplified payment verification_, or SPV. ((("lightweight
clients")))These nodes are known as SPV nodes or lightweight nodes. In
the full-node example in the figure, the full-node blockchain database
function is indicated by a circle called "Full Blockchain" or the letter
"B." In <<bitcoin_network>>, SPV nodes are drawn without the "B" circle,
showing that they do not have a full copy of the blockchain.

((("Bitcoin nodes", "mining nodes")))((("mining and consensus", "mining
nodes")))((("Proof-of-Work algorithm")))((("mining and consensus",
"Proof-of-Work algorithm")))Mining nodes compete to create new blocks by
running specialized hardware to solve the Proof-of-Work algorithm. Some
mining nodes are also full nodes, maintaining a full copy of the
blockchain, while others are lightweight nodes participating in pool
mining and depending on a pool server to maintain a full node. The
mining function is shown in the full node as a black circle called
"Miner" or the letter  "M."

User wallets might be part of a full node, as is usually the case with
desktop Bitcoin clients. Increasingly, many user wallets, especially
those running on resource-constrained devices such as smartphones, are
SPV nodes. The wallet function is shown in <<full_node_reference>> as a
green circle called "Wallet" or the letter "W."

In addition to the main node types on the Bitcoin P2P protocol, there
are servers and nodes running other protocols, such as specialized
mining pool protocols and lightweight client-access protocols.

<<node_type_ledgend>> shows the most common node types on the extended
Bitcoin network.

=== The Extended Bitcoin Network

((("", startref="BNnode08")))((("", startref="BNtype08")))((("Bitcoin
network", "extended network activities")))The main Bitcoin network,
running the Bitcoin P2P protocol, consists of between 5,000 and 8,000
listening nodes running various versions of the Bitcoin reference client
(Bitcoin Core) and a few hundred nodes running various other
implementations of the Bitcoin P2P protocol, such as Bitcoin Classic,
Bitcoin Unlimited, BitcoinJ, Libbitcoin, btcd, and bcoin. A small
percentage of the nodes on the Bitcoin P2P network are also mining
nodes, competing in the mining process, validating transactions, and
creating new blocks. Various large companies interface with the Bitcoin
network by running full-node clients based on the Bitcoin Core client,
with full copies of the blockchain and a network node, but without
mining or wallet functions. These nodes act as network edge routers,
allowing various other services (exchanges, wallets, block explorers,
merchant payment processing) to be built on top.

The extended Bitcoin network includes the network running the Bitcoin
P2P protocol, described earlier, as well as nodes running specialized
protocols. Attached to the main Bitcoin P2P network are a number of pool
servers and protocol gateways that connect nodes running other
protocols. These other protocol nodes are mostly pool mining nodes (see
<<mining>>) and lightweight wallet clients, which do not carry a full
copy of the blockchain.

<<bitcoin_network>> shows the extended Bitcoin network with the various
types of nodes, gateway servers, edge routers, and wallet clients and
the various protocols they use to connect to each other.

[[node_type_ledgend]]
.Different types of nodes on the extended Bitcoin network
image::images/mbc2_0802.png["BitcoinNodeTypes"]

[[bitcoin_network]]
.The extended Bitcoin network showing various node types, gateways, and protocols
image::images/mbc2_0803.png["BitcoinNetwork"]

=== Bitcoin Relay Networks

((("Bitcoin network", "Bitcoin Relay Networks")))((("relay
networks")))While the Bitcoin P2P network serves the general needs of a
broad variety of node types, it exhibits too high network latency for
the specialized needs of Bitcoin mining nodes.

((("propagation", "relay networks and")))Bitcoin miners are engaged in a
time-sensitive competition to solve the Proof-of-Work problem and extend
the blockchain (see <<mining>>). While participating in this
competition, Bitcoin miners must minimize the time between the
propagation of a winning block and the beginning of the next round of
competition. In mining, network latency is directly related to profit
margins.

A _Bitcoin Relay Network_ is a network that attempts to minimize the
latency in the transmission of blocks between miners. The original
http://www.bitcoinrelaynetwork.org[Bitcoin Relay Network] was created by
core developer Matt Corallo in 2015 to enable fast synchronization of
blocks between miners with very low latency. The network consisted of
several specialized nodes hosted on the Amazon Web Services
infrastructure around the world and served to connect the majority of
miners and mining pools.

((("Fast Internet Bitcoin Relay Engine (FIBRE)")))((("Compact Block
optimization")))The original Bitcoin Relay Network was replaced in 2016
with the introduction of the _Fast Internet Bitcoin Relay Engine_ or
http://bitcoinfibre.org[_FIBRE_], also created by core developer Matt
Corallo. FIBRE is a UDP-based relay network that relays blocks within a
network of nodes. FIBRE implements _compact block_ optimization to
further reduce the amount of data transmitted and the network latency.

((("Falcon Relay Network")))Another relay network (still in the proposal
phase) is http://www.falcon-net.org/about[_Falcon_], based on research
at Cornell University. Falcon uses "cut-through-routing" instead of
"store-and-forward" to reduce latency by propagating parts of blocks as
they are received rather than waiting until a complete block is
received.

Relay networks are not replacements for Bitcoin's P2P network. Instead
they are overlay networks that provide additional connectivity between
nodes with specialized needs. Like freeways are not replacements for
rural roads, but rather shortcuts between two points with heavy traffic,
you still need small roads to connect to the freeways.

=== Network Discovery

((("Bitcoin network", "extended network discovery",
id="BNextend08")))((("Bitcoin nodes", "network discovery",
id="BNodiscover08")))When a new node boots up, it must discover other
Bitcoin nodes on the network in order to participate. To start this
process, a new node must discover at least one existing node on the
network and connect to it. The geographic location of other nodes is
irrelevant; the Bitcoin network topology is not geographically defined.
Therefore, any existing Bitcoin nodes can be selected at random.

To connect to a known peer, nodes establish a TCP connection, usually to
port 8333 (the port generally known as the one used by Bitcoin), or an
alternative port if one is provided. Upon establishing a connection, the
node will start a "handshake" (see <<network_handshake>>) by
transmitting a  +version+ message, which contains basic identifying
information, including:

+nVersion+:: The Bitcoin P2P protocol version the client "speaks" (e.g., 70002)
+nLocalServices+:: A list of local services supported by the node, currently just +NODE_NETWORK+
+nTime+:: The current time
+addrYou+:: The IP address of the remote node as seen from this node
+addrMe+:: The IP address of the local node, as discovered by the local node
+subver+:: A sub-version showing the type of software running on this node (e.g., pass:[<span class="keep-together"><code>/Satoshi:0.9.2.1/</code></span>])
+BestHeight+:: The block height of this node's blockchain

(See http://bit.ly/1qlsC7w[GitHub] for an example of the +version+ network message.)

The +version+ message is always the first message sent by any peer to
another peer. The local peer receiving a +version+ message will examine
the remote peer's reported +nVersion+ and decide if the remote peer is
compatible. If the remote peer is compatible, the local peer will
acknowledge the +version+ message and establish a connection by sending
a +verack+.

How does a new node find peers? The first method is to query DNS using a
number of "DNS seeds," which are DNS servers that provide a list of IP
addresses of Bitcoin nodes. Some of those DNS seeds provide a static
list of IP addresses of stable Bitcoin listening nodes. Some of the DNS
seeds are custom implementations of BIND (Berkeley Internet Name Daemon)
that return a random subset from a list of Bitcoin node addresses
collected by a crawler or a long-running Bitcoin node.  The Bitcoin Core
client contains the names of five different DNS seeds. The diversity of
ownership and diversity of implementation of the different DNS seeds
offers a high level of reliability for the initial bootstrapping
process. In the Bitcoin Core client, the option to use the DNS seeds is
controlled by the option switch +-dnsseed+ (set to 1 by default, to use
the DNS seed).

Alternatively, a bootstrapping node that knows nothing of the network
must be given the IP address of at least one Bitcoin node, after which
it can establish connections through further introductions. The
command-line argument +-seednode+ can be used to connect to one node
just for introductions using it as a seed. After the initial seed node
is used to form introductions, the client will disconnect from it and
use the newly discovered peers.

[[network_handshake]]
.The initial handshake between peers
image::images/mbc2_0804.png["NetworkHandshake"]

Once one or more connections are established, the new node will send an
+addr+ message containing its own IP address to its neighbors. The
neighbors will, in turn, forward the +addr+ message to their neighbors,
ensuring that the newly connected node becomes well known and better
connected. Additionally, the newly connected node can send +getaddr+ to
the neighbors, asking them to return a list of IP addresses of other
peers. That way, a node can find peers to connect to and advertise its
existence on the network for other nodes to find it.
<<address_propagation>> ((("propagation", "address propagation and
discovery")))shows the address discovery protocol.


[[address_propagation]]
.Address propagation and discovery
image::images/mbc2_0805.png["AddressPropagation"]

A node must connect to a few different peers in order to establish
diverse paths into the Bitcoin network. Paths are not reliable—nodes
come and go—and so the node must continue to discover new nodes as it
loses old connections as well as assist other nodes when they bootstrap.
Only one connection is needed to bootstrap, because the first node can
offer introductions to its peer nodes and those peers can offer further
introductions. It's also unnecessary and wasteful of network resources
to connect to more than a handful of nodes. After bootstrapping, a node
will remember its most recent successful peer connections, so that if it
is rebooted it can quickly reestablish connections with its former peer
network. If none of the former peers respond to its connection request,
the node can use the seed nodes to bootstrap again.

On a node running the Bitcoin Core client, you can list the peer
connections with the command +getpeerinfo+:

[source,bash]
----
$ bitcoin-cli getpeerinfo
----
[source,json]
----
[
    {
        "addr" : "85.213.199.39:8333",
        "services" : "00000001",
        "lastsend" : 1405634126,
        "lastrecv" : 1405634127,
        "bytessent" : 23487651,
        "bytesrecv" : 138679099,
        "conntime" : 1405021768,
        "pingtime" : 0.00000000,
        "version" : 70002,
        "subver" : "/Satoshi:0.9.2.1/",
        "inbound" : false,
        "startingheight" : 310131,
        "banscore" : 0,
        "syncnode" : true
    },
    {
        "addr" : "58.23.244.20:8333",
        "services" : "00000001",
        "lastsend" : 1405634127,
        "lastrecv" : 1405634124,
        "bytessent" : 4460918,
        "bytesrecv" : 8903575,
        "conntime" : 1405559628,
        "pingtime" : 0.00000000,
        "version" : 70001,
        "subver" : "/Satoshi:0.8.6/",
        "inbound" : false,
        "startingheight" : 311074,
        "banscore" : 0,
        "syncnode" : false
    }
]
----

To override the automatic management of peers and to specify a list of
IP addresses, users can provide the option +-connect=<IPAddress>+ and
specify one or more IP addresses. If this option is used, the node will
only connect to the selected IP addresses, instead of discovering and
maintaining the peer connections automatically.

If there is no traffic on a connection, nodes will periodically send a
message to maintain the connection. If a node has not communicated on a
connection for more than 90 minutes, it is assumed to be disconnected
and a new peer will be sought. Thus, the network dynamically adjusts to
transient nodes and network problems, and can organically grow and
shrink as needed without any central control.((("",
startref="BNextend08")))((("", startref="BNodiscover08")))

=== Full Nodes

((("Bitcoin network", "full nodes")))((("full-node
clients")))((("blockchain (the)", "full blockchain nodes")))Full nodes
are nodes that maintain a full blockchain with all transactions. More
accurately, they probably should be called "full blockchain nodes." In
the early years of Bitcoin, all nodes were full nodes and currently the
Bitcoin Core client is a full blockchain node. In the past two years,
however, new forms of Bitcoin clients have been introduced that do not
maintain a full blockchain but run as lightweight clients. We'll examine
these in more detail in the next section.

((("blocks", "genesis block")))((("genesis block")))((("blockchain
(the)", "genesis block")))Full blockchain nodes maintain a complete and
up-to-date copy of the Bitcoin blockchain with all the transactions,
which they independently build and verify, starting with the very first
block (genesis block) and building up to the latest known block in the
network. A full blockchain node can independently and authoritatively
verify any transaction without recourse or reliance on any other node or
source of information. The full blockchain node relies on the network to
receive updates about new blocks of transactions, which it then verifies
and incorporates into its local copy of the blockchain.

((("Bitcoin nodes", "full nodes")))Running a full blockchain node gives
you the pure Bitcoin experience: independent verification of all
transactions without the need to rely on, or trust, any other systems.
It's easy to tell if you're running a full node because it requires more
than one hundred gigabytes of persistent storage (disk space) to store
the full blockchain. If you need a lot of disk and it takes two to three
days to sync to the network, you are running a full node. That is the
price of complete independence and freedom from central authority.

((("Satoshi client")))There are a few alternative implementations of
full blockchain Bitcoin clients, built using different programming
languages and software architectures. However, the most common
implementation is the reference client Bitcoin Core, also known as the
Satoshi client. More than 75% of the nodes on the Bitcoin network run
various versions of Bitcoin Core. It is identified as "Satoshi" in the
sub-version string sent in the +version+ message and shown by the
command +getpeerinfo+ as we saw earlier; for example, +/Satoshi:0.8.6/+.

=== Exchanging "Inventory"

((("Bitcoin network", "syncing the blockchain")))The first thing a full
node will do once it connects to peers is try to construct a complete
blockchain. If it is a brand-new node and has no blockchain at all, it
only knows one block, the genesis block, which is statically embedded in
the client software. Starting with block #0 (the genesis block), the new
node will have to download hundreds of thousands of blocks to
synchronize with the network and reestablish the full blockchain.

((("blockchain (the)", "syncing the blockchain")))((("syncing")))The
process of syncing the blockchain starts with the +version+ message,
because that contains +BestHeight+, a node's current blockchain height
(number of blocks). A node will see the +version+ messages from its
peers, know how many blocks they each have, and be able to compare to
how many blocks it has in its own blockchain. Peered nodes will exchange
a +getblocks+ message that contains the hash (fingerprint) of the top
block on their local blockchain. One of the peers will be able to
identify the received hash as belonging to a block that is not at the
top, but rather belongs to an older block, thus deducing that its own
local blockchain is longer than its peer's.

The peer that has the longer blockchain has more blocks than the other
node and can identify which blocks the other node needs in order to
"catch up." It will identify the first 500 blocks to share and transmit
their hashes using an +inv+ (inventory) message. The node missing these
blocks will then retrieve them, by issuing a series of +getdata+
messages requesting the full block data and identifying the requested
blocks using the hashes from the +inv+ message.

Let's assume, for example, that a node only has the genesis block. It
will then receive an +inv+ message from its peers containing the hashes
of the next 500 blocks in the chain. It will start requesting blocks
from all of its connected peers, spreading the load and ensuring that it
doesn't overwhelm any peer with requests. The node keeps track of how
many blocks are "in transit" per peer connection, meaning blocks that it
has requested but not received, checking that it does not exceed a limit
(+MAX_BLOCKS_IN_TRANSIT_PER_PEER+). This way, if it needs a lot of
blocks, it will only request new ones as previous requests are
fulfilled, allowing the peers to control the pace of updates and not
overwhelm the network. As each block is received, it is added to the
blockchain, as we will see in <<blockchain>>. As the local blockchain is
gradually built up, more blocks are requested and received, and the
process continues until the node catches up to the rest of the network.

This process of comparing the local blockchain with the peers and
retrieving any missing blocks happens any time a node goes offline for
any period of time. Whether a node has been offline for a few minutes
and is missing a few blocks, or a month and is missing a few thousand
blocks, it starts by sending +getblocks+, gets an +inv+ response, and
starts downloading the missing blocks. <<inventory_synchronization>>
shows the inventory and block propagation protocol.

[[inventory_synchronization]]
[role="smallerfifty"]
.Node synchronizing the blockchain by retrieving blocks from a peer
image::images/mbc2_0806.png["InventorySynchronization"]

[[spv_nodes]]
=== Simplified Payment Verification (SPV) Nodes

((("bitcoin network", "SPV nodes", id="BNspvnodes08")))((("bitcoin
nodes", "SPV nodes", id="BNospv08")))((("simple-payment-verification
(SPV)", id="simple08")))Not all nodes have the ability to store the full
blockchain. Many Bitcoin clients are designed to run on space- and
power-constrained devices, such as smartphones, tablets, or embedded
systems. For such devices, a _simplified payment verification_ (SPV)
method is used to allow them to operate without storing the full
blockchain. These types of clients are called SPV clients or lightweight
clients. As Bitcoin adoption surges, the SPV node is becoming the most
common form of Bitcoin node, especially for Bitcoin wallets.

SPV nodes download only the block headers and do not download the
transactions included in each block. The resulting chain of blocks,
without transactions, is 1,000 times smaller than the full blockchain.
SPV nodes cannot construct a full picture of all the UTXOs that are
available for spending because they do not know about all the
transactions on the network. SPV nodes verify transactions using a
slightly different method that relies on peers to provide partial views
of relevant parts of the blockchain on demand.

As an analogy, a full node is like a tourist in a strange city, equipped
with a detailed map of every street and every address. By comparison, an
SPV node is like a tourist in a strange city asking random strangers for
turn-by-turn directions while knowing only one main avenue. Although
both tourists can verify the existence of a street by visiting it, the
tourist without a map doesn't know what lies down any of the side
streets and doesn't know what other streets exist. Positioned in front
of 23 Church Street, the tourist without a map cannot know if there are
a dozen other "23 Church Street" addresses in the city and whether this
is the right one. The mapless tourist's best chance is to ask enough
people and hope some of them are not trying to mug him.

SPV verifies transactions by reference to their _depth_ in the blockchain instead of their _height_. Whereas a full blockchain node will construct a fully verified chain of thousands of blocks and transactions reaching down the blockchain (back in time) all the way to the genesis block, an SPV node will verify the chain of all blocks (but not all transactions) and link that chain to the transaction of interest.

For example, when examining a transaction in block 300,000, a full node
links all 300,000 blocks down to the genesis block and builds a full
database of UTXO, establishing the validity of the transaction by
confirming that the UTXO remains unspent. An SPV node cannot validate
whether the UTXO is unspent. Instead, the SPV node will establish a link
between the transaction and the block that contains it, using a _merkle
path_ (see <<merkle_trees>>). Then, the SPV node waits until it sees the
six blocks 300,001 through 300,006 piled on top of the block containing
the transaction and verifies it by establishing its depth under blocks
300,006 to 300,001. The fact that other nodes on the network accepted
block 300,000 and then did the necessary work to produce six more blocks
on top of it is proof, by proxy, that the transaction was not a
double-spend.

An SPV node cannot be persuaded that a transaction exists in a block
when the transaction does not in fact exist. The SPV node establishes
the existence of a transaction in a block by requesting a merkle path
proof and by validating the Proof-of-Work in the chain of blocks.
However, a transaction's existence can be "hidden" from an SPV node. An
SPV node can definitely prove that a transaction exists but cannot
verify that a transaction, such as a double-spend of the same UTXO,
doesn't exist because it doesn't have a record of all transactions. This
vulnerability can be used in a denial-of-service attack or for a
double-spending attack against SPV nodes. To defend against this, an SPV
node needs to connect randomly to several nodes, to increase the
probability that it is in contact with at least one honest node. This
need to randomly connect means that SPV nodes also are vulnerable to
network partitioning attacks or Sybil attacks, where they are connected
to fake nodes or fake networks and do not have access to honest nodes or
the real Bitcoin network.

For most practical purposes, well-connected SPV nodes are secure enough,
striking a balance between resource needs, practicality, and security.
For infallible security, however, nothing beats running a full
blockchain node.

[TIP]
====
A full blockchain node verifies a transaction by checking the entire
chain of thousands of blocks below it in order to guarantee that the
UTXO is not spent, whereas an SPV node checks how deep the block is
buried by a handful of blocks above it.
====

To get the block headers, SPV nodes use a +getheaders+ message instead
of +getblocks+. The responding peer will send up to 2,000 block headers
using a single +headers+ message. The process is otherwise the same as
that used by a full node to retrieve full blocks. SPV nodes also set a
filter on the connection to peers, to filter the stream of future blocks
and transactions sent by the peers. Any transactions of interest are
retrieved using a +getdata+ request. The peer generates a +tx+ message
containing the transactions, in response. <<spv_synchronization>> shows
the synchronization of block headers.

Because SPV nodes need to retrieve specific transactions in order to
selectively verify them, they also create a privacy risk. Unlike full
blockchain nodes, which collect all transactions within each block, the
SPV node's requests for specific data can inadvertently reveal the
addresses in their wallet. For example, a third party monitoring a
network could keep track of all the transactions requested by a wallet
on an SPV node and use those to associate Bitcoin addresses with the
user of that wallet, destroying the user's privacy.

[[spv_synchronization]]
.SPV node synchronizing the block headers
image::images/mbc2_0807.png["SPVSynchronization"]

Shortly after the introduction of SPV/lightweight nodes, Bitcoin
developers added a feature called _bloom filters_ to address the privacy
risks of SPV nodes. Bloom filters allow SPV nodes to receive a subset of
the transactions without revealing precisely which addresses they are
interested in, through a filtering mechanism that uses probabilities
rather than fixed patterns.((("", startref="BNspvnodes08")))((("",
startref="simple08")))

[[bloom_filters]]
=== Bloom Filters

((("bitcoin network", "bloom filters", id="BNebloom08")))((("bloom
filters", id="bloom08")))((("privacy, maintaining",
id="privacy08")))((("security", "maintaining privacy",
id="Sprivacy08")))A bloom filter is a probabilistic search filter, a way
to describe a desired pattern without specifying it exactly. Bloom
filters offer an efficient way to express a search pattern while
protecting privacy. They are used by SPV nodes to ask their peers for
transactions matching a specific pattern, without revealing exactly
which addresses, keys, or transactions they are searching for.

In our previous analogy, a tourist without a map is asking for
directions to a specific address, "23 Church St." If she asks strangers
for directions to this street, she inadvertently reveals her
destination. A bloom filter is like asking, "Are there any streets in
this neighborhood whose name ends in R-C-H?" A question like that
reveals slightly less about the desired destination than asking for "23
Church St." Using this technique, a tourist could specify the desired
address in more detail such as "ending in U-R-C-H" or less detail as
"ending in H." By varying the precision of the search, the tourist
reveals more or less information, at the expense of getting more or less
specific results. If she asks a less specific pattern, she gets a lot
more possible addresses and better privacy, but many of the results are
irrelevant. If she asks for a very specific pattern, she gets fewer
results but loses privacy.

Bloom filters serve this function by allowing an SPV node to specify a
search pattern for transactions that can be tuned toward precision or
privacy. A more specific bloom filter will produce accurate results, but
at the expense of revealing what patterns the SPV node is interested in,
thus revealing the addresses owned by the user's wallet. A less specific
bloom filter will produce more data about more transactions, many
irrelevant to the node, but will allow the node to maintain better
privacy.

==== How Bloom Filters Work

Bloom filters are implemented as a variable-size array of N binary
digits (a bit field) and a variable number of M hash functions. The hash
functions are designed to always produce an output that is between 1 and
N, corresponding to the array of binary digits. The hash functions are
generated deterministically, so that any node implementing a bloom
filter will always use the same hash functions and get the same results
for a specific input. By choosing different length (N) bloom filters and
a different number (M) of hash functions, the bloom filter can be tuned,
varying the level of accuracy and therefore privacy.

In <<bloom1>>, we use a very small array of 16 bits and a set of three
hash functions to demonstrate how bloom filters work.

[[bloom1]]
.An example of a simplistic bloom filter, with a 16-bit field and three hash functions
image::images/mbc2_0808.png["Bloom1"]

The bloom filter is initialized so that the array of bits is all zeros.
To add a pattern to the bloom filter, the pattern is hashed by each hash
function in turn. Applying the first hash function to the input results
in a number between 1 and N. The corresponding bit in the array (indexed
from 1 to N) is found and set to +1+, thereby recording the output of
the hash function. Then, the next hash function is used to set another
bit and so on. Once all M hash functions have been applied, the search
pattern will be "recorded" in the bloom filter as M bits that have been
changed from +0+ to +1+.

<<bloom2>> is an example of adding a pattern "A" to the simple bloom filter shown in <<bloom1>>.

Adding a second pattern is as simple as repeating this process. The
pattern is hashed by each hash function in turn and the result is
recorded by setting the bits to +1+. Note that as a bloom filter is
filled with more patterns, a hash function result might coincide with a
bit that is already set to +1+, in which case the bit is not changed. In
essence, as more patterns record on overlapping bits, the bloom filter
starts to become saturated with more bits set to +1+ and the accuracy of
the filter decreases. This is why the filter is a probabilistic data
structure—it gets less accurate as more patterns are added. The accuracy
depends on the number of patterns added versus the size of the bit array
(N) and number of hash functions (M). A larger bit array and more hash
functions can record more patterns with higher accuracy. A smaller bit
array or fewer hash functions will record fewer patterns and produce
less accuracy.

[[bloom2]]
.Adding a pattern "A" to our simple bloom filter
image::images/mbc2_0809.png["Bloom2"]

<<bloom3>> is an example of adding a second pattern "B" to the simple bloom filter.

[[bloom3]]
[role="smallereighty"]
.Adding a second pattern "B" to our simple bloom filter
image::images/mbc2_0810.png["Bloom3"]

To test if a pattern is part of a bloom filter, the pattern is hashed by
each hash function and the resulting bit pattern is tested against the
bit array. If all the bits indexed by the hash functions are set to +1+,
then the pattern is _probably_ recorded in the bloom filter. Because the
bits may be set because of overlap from multiple patterns, the answer is
not certain, but is rather probabilistic. In simple terms, a bloom
filter positive match is a "Maybe, Yes."

<<bloom4>> is an example of testing the existence of pattern "X" in the
simple bloom filter. The corresponding bits are set to +1+, so the
pattern is probably a match.

[[bloom4]]
[role="smallereighty"]
.Testing the existence of pattern "X" in the bloom filter. The result is a probabilistic positive match, meaning "Maybe."
image::images/mbc2_0811.png["Bloom4"]

On the contrary, if a pattern is tested against the bloom filter and any
one of the bits is set to +0+, this proves that the pattern was not
recorded in the bloom filter. A negative result is not a probability, it
is a certainty. In simple terms, a negative match on a bloom filter is a
"Definitely Not!"

<<bloom5>> is an example of testing the existence of pattern "Y" in the
simple bloom filter. One of the corresponding bits is set to +0+, so the
pattern is definitely not a match.

[[bloom5]]
.Testing the existence of pattern "Y" in the bloom filter. The result is a definitive negative match, meaning "Definitely Not!"
image::images/mbc2_0812.png[]

=== How SPV Nodes Use Bloom Filters

Bloom filters are used to filter the transactions (and blocks containing
them) that an SPV node receives from its peers, selecting only
transactions of interest to the SPV node without revealing which
addresses or keys it is interested in.

((("transaction IDs (txid)")))An SPV node will initialize a bloom filter
as "empty"; in that state the bloom filter will not match any patterns.
The SPV node will then make a list of all the addresses, keys, and
hashes that it is interested in. It will do this by extracting the
public key hash and script hash and transaction IDs from any UTXO
controlled by its wallet. The SPV node then adds each of these to the
bloom filter, so that the bloom filter will "match" if these patterns
are present in a transaction, without revealing the patterns themselves.

((("Bitcoin nodes", "full nodes")))The SPV node will then send a
+filterload+ message to the peer, containing the bloom filter to use on
the connection. On the peer, bloom filters are checked against each
incoming transaction. The full node checks several parts of the
transaction against the bloom filter, looking for a match including:

* The transaction ID
* The data components from the locking scripts of each of the transaction outputs (every key and hash in the script)
* Each of the transaction inputs
* Each of the input signature data components (or witness scripts)

By checking against all these components, bloom filters can be used to
match public key hashes, scripts, +OP_RETURN+ values, public keys in
signatures, or any future component of a smart contract or complex
script.

After a filter is established, the peer will then test each
transaction's outputs against the bloom filter. Only transactions that
match the filter are sent to the node.

In response to a +getdata+ message from the node, peers will send a
+merkleblock+ message that contains only block headers for blocks
matching the filter and a merkle path (see <<merkle_trees>>) for each
matching transaction. The peer will then also send +tx+ messages
containing the transactions matched by the filter.

As the full node sends transactions to the SPV node, the SPV node
discards any false positives and uses the correctly matched transactions
to update its UTXO set and wallet balance. As it updates its own view of
the UTXO set, it also modifies the bloom filter to match any future
transactions referencing the UTXO it just found. The full node then uses
the new bloom filter to match new transactions and the whole process
repeats.

The node setting the bloom filter can interactively add patterns to the
filter by sending a +filteradd+ message. To clear the bloom filter, the
node can send a +filterclear+ message. Because it is not possible to
remove a pattern from a bloom filter, a node has to clear and resend a
new bloom filter if a pattern is no longer desired.

The network protocol and bloom filter mechanism for SPV nodes is defined
in http://bit.ly/1x6qCiO[BIP-37 (Peer Services)].((("",
startref="BNebloom08")))((("", startref="bloom08")))

=== SPV Nodes and Privacy

Nodes that implement SPV have weaker privacy than a full node. A full
node receives all transactions and therefore reveals no information
about whether it is using some address in its wallet. An SPV node
receives a filtered list of transactions related to the addresses that
are in its wallet. As a result, it reduces the privacy of the owner.

Bloom filters are a way to reduce the loss of privacy. Without them, an
SPV node would have to explicitly list the addresses it was interested
in, creating a serious breach of privacy. However, even with bloom
filters, an adversary monitoring the traffic of an SPV client or
connected to it directly as a node in the P2P network can collect enough
information over time to learn the addresses in the wallet of the SPV
client.

=== Encrypted and Authenticated Connections

((("Bitcoin network", "encrypted
connections")))((("encryption")))((("authentication")))Most new users of
Bitcoin assume that the network communications of a Bitcoin node are
encrypted. In fact, the original implementation of bitcoin communicates
entirely in the clear. While this is not a major privacy concern for
full nodes, it is a big problem for SPV nodes.

As a way to increase the privacy and security of the Bitcoin P2P
network, there are two solutions that provide encryption of the
communications: _Tor Transport_ and _P2P Authentication and Encryption_
with BIP-150/151.

==== Tor Transport

((("Tor network")))((("The Onion Routing network (Tor)")))Tor, which
stands for _The Onion Routing network_, is a software project and
network that offers encryption and encapsulation of data through
randomized network paths that offer anonymity, untraceability and
privacy.

Bitcoin Core offers several configuration options that allow you to run
a Bitcoin node with its traffic transported over the Tor network. In
addition, Bitcoin Core can also offer a Tor hidden service allowing
other Tor nodes to connect to your node directly over Tor.

As of Bitcoin Core version 0.12, a node will offer a hidden Tor service
automatically if it is able to connect to a local Tor service. If you
have Tor installed and the Bitcoin Core process runs as a user with
adequate permissions to access the Tor authentication cookie, it should
work automatically. Use the +debug+ flag to turn on Bitcoin Core's
debugging for the Tor service like this:

----
$ bitcoind --daemon --debug=tor
----

You should see "tor: ADD_ONION successful" in the logs, indicating that
Bitcoin Core has added a hidden service to the Tor network.

You can find more instructions on running Bitcoin Core as a Tor hidden
service in the Bitcoin Core documentation (_docs/tor.md_) and various
online tutorials.

==== Peer-to-Peer Authentication and Encryption

((("Peer-to-Peer authentication and encryption")))((("bitcoin
improvement proposals", "Peer Authentication (BIP-150)")))((("bitcoin
improvement proposals", "Peer-to-Peer Communication Encryption
(BIP-151)")))Two Bitcoin Improvement Proposals, BIP-150 and BIP-151, add
support for P2P authentication and encryption in the Bitcoin P2P
network.  These two BIPs define optional services that may be offered by
compatible Bitcoin nodes. BIP-151 enables negotiated encryption for all
communications between two nodes that support BIP-151. BIP-150 offers
optional peer authentication that allows nodes to authenticate each
other's identity using ECDSA and private keys. BIP-150 requires that
prior to authentication the two nodes have established encrypted
communications as per BIP-151.

As of January 2017, BIP-150 and BIP-151 are not implemented in Bitcoin
Core. However, the two proposals have been implemented by at least one
alternative Bitcoin client named bcoin.

BIP-150 and BIP-151 allow users to run SPV clients that connect to a
trusted full node, using encryption and authentication to protect the
privacy of the SPV client.

Additionally, authentication can be used to create networks of trusted
Bitcoin nodes and prevent Man-in-the-Middle attacks. Finally, P2P
encryption, if deployed broadly, would strengthen the resistance of
Bitcoin to traffic analysis and privacy-eroding surveillance, especially
in totalitarian countries where internet use is heavily controlled and
monitored.

((("", startref="BNospv08")))((("", startref="privacy08")))((("",
startref="Sprivacy08")))The standard is defined in
https://github.com/bitcoin/bips/blob/master/bip-0150.mediawiki[BIP-150
(Peer Authentication)] and
https://github.com/bitcoin/bips/blob/master/bip-0151.mediawiki[BIP-151
(Peer-to-Peer Communication Encryption)].

=== Transaction Pools

((("Bitcoin network", "transaction pools")))((("transaction
pools")))((("memory pools (mempools)")))Almost every node on the Bitcoin
network maintains a temporary list of unconfirmed transactions called
the _memory pool_, _mempool_, or _transaction pool_. Nodes use this pool
to keep track of transactions that are known to the network but are not
yet included in the blockchain. For example, a wallet node will use the
transaction pool to track incoming payments to the user's wallet that
have been received on the network but are not yet confirmed.

As transactions are received and verified, they are added to the
transaction pool and relayed to the neighboring nodes to propagate on
the network.

((("orphan pools")))((("transactions", "orphaned")))Some node
implementations also maintain a separate pool of orphaned transactions.
If a transaction's inputs refer to a transaction that is not yet known,
such as a missing parent, the orphan transaction will be stored
temporarily in the orphan pool until the parent transaction arrives.

When a transaction is added to the transaction pool, the orphan pool is
checked for any orphans that reference this transaction's outputs (its
children). Any matching orphans are then validated. If valid, they are
removed from the orphan pool and added to the transaction pool,
completing the chain that started with the parent transaction. In light
of the newly added transaction, which is no longer an orphan, the
process is repeated recursively looking for any further descendants,
until no more descendants are found. Through this process, the arrival
of a parent transaction triggers a cascade reconstruction of an entire
chain of interdependent transactions by re-uniting the orphans with
their parents all the way down the chain.

Both the transaction pool and orphan pool (where implemented) are stored
in local memory and are not saved on persistent storage; rather, they
are dynamically populated from incoming network messages. When a node
starts, both pools are empty and are gradually populated with new
transactions received on the network.

Some implementations of the Bitcoin client also maintain an UTXO
database or pool, which is the set of all unspent outputs on the
blockchain. Although the name "UTXO pool" sounds similar to the
transaction pool, it represents a different set of data. Unlike the
transaction and orphan pools, the UTXO pool is not initialized empty but
instead contains millions of entries of unspent transaction outputs,
everything that is unspent from all the way back to the genesis block.
The UTXO pool may be housed in local memory or as an indexed database
table on persistent storage.

Whereas the transaction and orphan pools represent a single node's local
perspective and might vary significantly from node to node depending
upon when the node was started or restarted, the UTXO pool represents
the emergent consensus of the network and therefore will vary little
between nodes. Furthermore, the transaction and orphan pools only
contain unconfirmed transactions, while the UTXO pool only contains
confirmed outputs.
