What Is a Node in a Cryptocurrency Network? What Types of Nodes Are There?

Blockchain is a kind of ledger that stores all operations with digital assets. As a result of smart programming, a blockchain can become a self-regulating network that takes into account all ongoing payments and blocks any unregistered interference in asset transactions.

For this network to work, it needs nodes. They can store and transport financial records and check that everything is happening according to predetermined rules. Nodes are absolutely crucial for the normal operation of the blockchain.

How Do Nodes Work?

Every blockchain node is a device — a laptop, an ASIC miner, a smartphone, etc — that runs a program connecting them to blockchain and thus identifying them as part of the network. They work like employees in a large company, each one having its tasks and working together toward a common goal. Nodes can receive, send, process, validate and store transactions. There are also mining nodes, however they are present only in Bitcoin, Ethereum 1.0 and similar blockchains that support proof-of-work validation process.

Transactions are grouped together and stored in chunks called blocks. This is where the term “blockchain” originates — it’s just a history of operations stored in blocks that are all stored together. But before a new block can be safely added to this chain, the nodes must first make sure that it’s valid and all transactions contained in this block really happened.

Full nodes check, for example, that the same Bitcoin is not spent twice, and the wallet that wants to transfer it has enough crypto. In order for the coin transfer to be approved, all full nodes must first reach an agreement, “consensus” about it among themselves. They do this in accordance with the rules pre-set in the software. If 51% or more nodes agree that the transaction has indeed occurred, then it is approved and recorded in the next block.

Each full-fledged node contains a complete copy of the blockchain — that is, all transactions ever made on the network (for Bitcoin, this runs back all the way to 2009). When a new computer downloads the program and connects to the network, it also first downloads the entire blockchain. After that it starts working according to the exact same set of rules. This new node, which has just joined the network, is no different from all the others, and is absolutely equal with them. It can instantly check the validity of transactions, mine new coins, or receive and send crypto. And when a new block arrives from the miners, this node can decide whether it fits the rules and whether it is worth adding it to its blockchain.

In general, blockchain nodes are required by crypto networks to:

• Check the if new transactions comply with the rules
• Accept or reject these transactions
• Save successful transactions to the blockchain
• Coordinate with other nodes, offering valid and up-to-date data to the overall network.

Cryptocurrency nodes constantly communicate with each other. In Bitcoin, for example, this happens through the BTC P2P protocol. This protocol ensures the integrity of the entire system: any rogue node that tries to spread false information is quickly identified by honest nodes all around it and disconnected from the network.

Who Can Run a Node?

Any user can run a full-fledged Bitcoin node on their PC. This is the essence of decentralization. This can be achieved by various programs, but the most common one is Bitcoin Core.

The blockchain is constantly growing, the number of transactions is increasing, and therefore the specs required to run a node are also increasing every year. But in general, almost anyone can afford to be a node. As of September 2022, to run a node, you need to have:

• Laptop, PC or other device with one of the latest version of Windows/Linux/Mac OS
• No less than 2 GB of RAM
• At least 7 GB of disk space
• Decent connection — with the ability to download at least 50 kb of data per second.

But if you need a full-fledged node that contains a database with all transactions and monitors compliance with the rules in the network, you would need to download about 400 GB more — the volume of the entire Bitcoin blockchain at the moment. Plus, full nodes need to be constantly checking new transactions and so they usually download and upload at least 200 GB each month.

Also note that your computer must work in node mode for at least 6 hours a day. At this time, of course, you can freely do other things — watch movies, play games, etc. Being a node does not take a large amount of resources, and even the download speed of ordinary data is not significantly reduced. But the more hours a node works, the better it is for all participants of the Bitcoin network. Ideally, the node should be running continuously, 24/7.

Many organizations, crypto projects and regular users are hosting full-fledged BTC nodes in their free time to help the ecosystem cope with transaction load. As of 2022, there are approximately 15,000 public nodes working on the Bitcoin network. You can look at their statistics, including by country and by type, here.

As for other cryptocurrencies, node characteristics may differ, but the technology remains the same. This is, of course, if these cryptocurrencies are based on the proof-of-work model introduced by Bitcoin — which is the case with Ethereum 1.0, Litecoin and Dogecoin, among others. Ethereum 2.0, Polkadot, BNB, Cardano, NEAR and many more new crypto networks use a proof-of-stake model that does not require mining nodes.

Types of Bitcoin Nodes

There are many kinds of useful blockchain nodes, including staking nodes, masternodes, pruned nodes, etc. We will only cover the three main and most common types of blockchain nodes that everyone in the field should be aware of.

Full nodes

After a transaction is made, the full node accepts and processes it (that is, confirms its validity). Full nodes store the entire history of the blockchain, and so they perfectly understand in which wallet and how many coins are stored. They also fully know all the rules of the network encoded in the software. Therefore, they can act as arbiters of transactions, jointly guaranteeing the honest behavior of all network participants.

If the node sees that the transaction is valid, it passes it on to neighboring nodes for additional verification. When enough nodes confirm that everything is correct, this transfer is added to the pool of valid transactions, and can be written into the next block.

In general, full nodes ensure that all users on the Bitcoin network follow the rules. If they discover that some node does not follow these rules (for example, it tries to make fake transactions), then the consensus mechanism is turned on, the vote is held, and this node is turned off from the network.

This mechanism makes Bitcoin invulnerable to any fraud. The total value of all BTC exceeds $400 billion, and despite this, there are no fake transactions or fraud on the network at all. The only real threat to users is themselves: coins can only be lost if the password to their wallet is not secure or if they themselves transfer money to unscrupulous actors.

When there is a need to make a decision about the possible future of their blockchain platform, it is also the full nodes that vote on the proposals. The vote is monitored by an automatic consensus mechanism residing in the software. If more than 51% of the full nodes agree with the proposal, it is accepted. Sometimes this can even lead to a fork of the blockchain and the emergence of a new cryptocurrency. The most famous examples of this are Bitcoin Cash fork and Ethereum Classic.

Mining nodes

Any proof-of-work blockchain must contain mining nodes. They collect recent valid transactions and pack thousands of them into blocks. The task of the miner then is to decrypt the hash of the header of their block. The complexity of this task is constantly increasing, so in Bitcoin today it requires a huge computational power.

As soon as the program on the miner’s machine decides that the correct header for the block has been decrypted, it broadcasts this block to the network. Full nodes then check this assertion for validity, just like they check every transaction. If the new decrypted block complies with all the rules, full nodes will recognize it as valid and allow it to be added to the chain.

In this case, the miner will receive his reward for the decrypted block. Once such a reward was 50 BTC per block, but every 4 years the reward is reduced by 2 times, and now it’s only 6.25 BTC (which is still close to $150,000). Adding to that, the miner is also rewarded with commissions for all transactions packed in his block. This is actually one of the reasons why a transaction in the BTC network may not be carried out if the gas fees are too low. Miners simply won’t take such a “unprofitable” transaction into the block they are mining.

Once enough full nodes recognize this block and add it to their chain, a consensus will be reached. At this point, all operations (coin transfers) in this block are processed, wallets lose and gain their BTC accordingly, and all nodes update their version of the chain. Miners immediately start the race to create the next block. On average, it will take around 10 minutes to calculate one block, and the system is always adjusting the hash difficulty to reach this target number.

By the way, specifically in Bitcoin, the program is built in such a way that a transaction is considered completed only when it receives at least six confirmations. That is, the blockchain has to gain 6 new blocks, in which this transaction is considered completed. This automatically means that it takes at least an hour to complete a transaction on the network. Which is considered to be one of the disadvantages of the Bitcoin network. Almost all other blockchains process and confirm transactions much faster, sometimes in mere seconds.

Full-fledged nodes can easily run on almost any modern laptop and even the Raspberry Pi. The main limitation there is to have enough space to store the entire blockchain. Meanwhile, miners have to spend tens, sometimes hundreds of thousands of dollars on specialized equipment, tailor-made to decrypt new blocks. However, of course, full nodes do not receive any reward for their work of verifying transactions and blocks, while lucky miners can sometimes earn millions of dollars per month.

Light nodes

The third and last of the popular types of crypto nodes. They run specific software, often made by third parties, that stores significantly truncated version of the blockchain. It has only block headers and data on the presence of cryptocurrency in each of the wallets, and not the entire list of every transaction in history.

This greatly saves time for loading the blockchain and reduces the requirements for free disk space. Instead of the usual full 400 GB, a light node only needs 7 GB. Which makes it a convenient alternative for millions of users who want convenience above all else.

Because these nodes don’t contain the full blockchain, they cannot themselves verify transactions or new blocks for validity. Therefore, to work normally, they must connect to full-fledged nodes in order to receive their up-to-date and valid data. The only thing that light nodes are capable of on their own is to receive and transfer coins.

The most wide-spread light nodes are Bitcoin hardware wallets on mobile devices. Most smartphones plainly do not have enough gigabytes of free space and a stable enough connection to become a full node. And, of course, they do not have enough computational power to become mining nodes. But they can be an important part of the ecosystem, keeping a short version of the chain and operating on the network. If you have ever sent or received BTC through a program on your smartphone, then your device most likely was a light node, at least for a short while.