What Is a Bitcoin Node? | Crypto.com

Key Takeaways

• Essential to the Bitcoin network, nodes validate transactions, maintain the blockchain, and uphold the cryptocurrency’s decentralised nature.

• Several node types, from full to mining nodes, perform unique functions that make the network operational.

• The network relies on consensus amongst distributed nodes, instead of a central authority, for security and resistance to fraud and hacks.

• Bitcoin’s distributed node and consensus innovations have established the cryptocurrency space and influenced other industries to adopt blockchain technology.

Introduction

When individuals begin learning about Bitcoin (BTC), they tend to focus on the best-known parts of blockchain technology. Most novices understand that Bitcoin was the first cryptocurrency, digital wallets store one’s cryptocurrency, and blocks on the blockchain contain transaction data like the amount and input/output addresses. Over time, these novices gain experience, learning more about the inner workings of the Bitcoin network, like how to buy, sell, and trade Bitcoin; how the Bitcoin mining process works; blockchain security features; and what Bitcoin halving means. 

A more advanced level of understanding for aspiring cryptocurrency enthusiasts comes from learning about nodes, one of the most important aspects of cryptocurrency, which transform Bitcoin and others from theoretical constructs into functional value stores. There are multiple types of nodes, and comprehending what they are and how they work is central to understanding blockchain technology.

This article explores nodes, from full and lightning ones to how they verify transactions and build the blockchain. We define what nodes are and detail the vital role they play in the Bitcoin network. We also cover different kinds of nodes keeping the decentralised nature of the blockchain intact. Additionally, we look at how the Bitcoin network has influenced the world and what role BTC may play in driving the future of global trade. Continue reading to learn more about nodes — a crucial part of the Bitcoin network.

What Is a Bitcoin Node? Unravelling the Core of Bitcoin Technology

Though an everyday trading vehicle and means of exchange, Bitcoin is more than just a digital coin bought, traded, and exchanged for goods and services. It is a network of interconnected computers that regularly shares information, and this network is an essential component of decentralised finance (DeFi). It allows a community to exist in support of the coin, where enthusiasts work together to build a secure network without requiring intermediaries like banks. 

Bitcoin is also a protocol defining the rules for data sharing between computers on its network. These rules are codified in software accessible to everyone, ensuring Bitcoin remains transparent to all users. In theory, anyone could make their computer a node with the appropriate knowledge, hardware, and software.

What Is a Node?

A node is any hardware that connects to a broader network. For instance, laptops are hardware that connects to the internet via a Wi-Fi chip. Thus, a connected laptop can be considered a node of the internet. Apps and other software help the node (in this example, the laptop) operate on the network (internet), telling it what information to send, receive, or store. 

For Bitcoin, a node is any computer participating in the network by running the appropriate software. Bitcoin Core (the most popular Bitcoin software) and other applications handle the instructions, telling Bitcoin nodes to send and receive information about the blocks and the transactions inside them. These nodes share transaction information and blocks, creating a network striving for the consensus that all blockchain transactions follow the rules of Bitcoin. 

It’s easy to envision one blockchain accessible by a multitude of devices, but that’s not how the Bitcoin network works. Instead, each node has a copy of the blockchain, which needs regular updates to ensure all nodes are in sync. Since updates happen automatically, node operators don’t generally need to worry about manually verifying that their computer has an up-to-date copy of the Bitcoin blockchain as long as they are online.

The Essential Role of Nodes in Supervising Bitcoin Transfers

A Bitcoin node serves two vital functions. First, these interconnected computers broadcast transaction data to participants, removing the need for a central authority. Likewise, a node ‘reports’ on new blocks emerging from mining efforts. Think of Bitcoin nodes as a ‘Bitcoin News Network’ of sorts: They communicate information around the clock, making it easy to keep up with the latest transactions. 

Second, Bitcoin runs on a set of Proof of Work (PoW) consensus rules, and nodes are essential to enforcing them. Whenever a transaction takes place, a node validates its authenticity and then disseminates it to other nodes to do the same. Once enough nodes decide the transaction is valid, it gains ‘pending’ status. Full nodes store these pending transactions in a temporary location, called a ‘mempool’, and wait for further verification. If a pending transaction is invalid because it doesn’t meet the rules of the Bitcoin protocol, the nodes remove it from the mempool, and it does not execute. 

A Distributed and Independent Verification System

One important detail protecting the validity of Bitcoin transactions is that each node must verify them independently from other nodes.

An example helps visualise this concept:

Consider two devices: Node A and Node B. 

Node A receives data first and confirms that all transactions are valid. 

Node A disseminates the data it receives to other computers, including Node B. 

Node B verifies the transactions without knowing Node A has already approved them. 

If A and B reach the same conclusion, they have a consensus, and the data can become a new block. 

Actual use cases require consensus from far more than two nodes, of course, but this is a basic illustration of how the system works. 

Miners gather pending transactions and batch them into blocks to add to the blockchain. When miners believe a block is ready for addition to the blockchain, they send it to the nodes for validation. Once again, nodes automatically check the work performed and broadcast the new block to other nodes. When enough nodes confirm the transaction, it’s formally added to the blockchain, and all nodes update their copies. 

This system might seem convoluted, but it improves the security of the Bitcoin network and avoids the ‘double-spending’ problem, which is the risk of BTC or other cryptocurrencies being spent twice or more times, disrupting their integrity. Bitcoin solves this issue with sound consensus mechanisms, including requiring each node to work independently and having a decentralised public ledger that allows anyone to review transactions. Tampering with the system would require majority control of full nodes (a 51% attack) and precise manipulation of blocks to ensure consistency. 

A further protection is that Bitcoin has no central authority, relying instead on a distributed network of nodes. For example, when consumers use a credit card, the financial institution performs all the validation. If a bad actor successfully hacks into the network, they can take control of the card. The Bitcoin network, on the other hand, distributes transactional information around the world to thousands of nodes, and nobody knows the precise number online at any given time. The redundancy of this process with an unknown and unlimited number of participants makes it practically impossible for a bad actor to control at least 51% of Bitcoin nodes in order to alter the blockchain.

An Honor System

Nodes encourage participants in the Bitcoin network to act in good faith, including miners. If a miner completes a block without following the rules, other nodes reject the work, and there is no compensation for the miner’s efforts. Miners know this, so in theory, they submit blocks only when they’re confident of approval. Nodes also quickly catch any rogue miners. However, a 51% attack is theoretically possible.

Understanding the Types of Bitcoin Nodes: From Full Nodes to Listening Nodes

The Bitcoin network requires several different kinds of nodes, each performing specialised functions. Here, we cover the most common types of nodes and how they contribute to making Bitcoin work.

The Full Node Is a Key Component of Bitcoin’s Success

Full nodes are the original node type all others originated from, and the Bitcoin network relies on them to function. They independently verify the Bitcoin blockchain by downloading every block and transaction and checking them against the Bitcoin protocol rules, ensuring that every transaction is legitimate before approval. Below, we look at a few of these rules.

Example Rules for Validating Transactions According to the Bitcoin Protocol

• The transaction must have a proper input source of Bitcoin and a valid output destination.
• The transaction must have the proper digital signature. 
• The sender must have enough bitcoins for the transaction.
• The bitcoins in the transaction must not show up in an existing transaction (protecting against double-spending).

Once enough full nodes agree that a transaction is valid, miners begin the process of adding it to the blockchain. Likewise, full nodes are responsible for double-checking a miner’s work. Full nodes don’t generate revenue for their operators, but they are an excellent way for individuals to contribute to the broader DeFi community. Of course, altruism isn’t the only reason to set up a full node; they provide some benefits to those who choose to run one.

Operating a full node provides direct access to blockchain information, such as the current supply of Bitcoin, transaction processing without relying on a third party, and improved security. The network becomes more resistant to cyberattacks with more nodes, and running a full node also provides privacy since operators control what transaction information they send to other nodes. Businesses accepting cryptocurrency often manage their own full nodes since there’s no other way to reliably process a large number of transactions. These companies may tout their full nodes to provide potential customers with a sense of added security. 

Running a full node allows operators the chance to vote whenever the Bitcoin network considers changes. For example, the Bitcoin blockchain was hard-forked in August 2017, resulting in two distinct coins: the original Bitcoin (BTC) and Bitcoin Cash (BCH). The new BCH coin had larger blocks, facilitating faster and cheaper transactions at the expense of increased storage costs for network nodes. 

Most Bitcoin holders received some of each token following the split, whether they wanted to hold BCH or not. However, full node operators chose which side of the split to support, ensuring their holdings aligned with their convictions. Since each side of a hard fork competes for resources, node support can affect the long-term viability of either coin.

Most individuals continued supporting the original Bitcoin, so BTC remained the most popular cryptocurrency in the market. In 2018, Bitcoin Cash had a second hard fork, creating Bitcoin SV (in addition to keeping Bitcoin Cash).

Supernodes Are Crucial to Distributing Bitcoin Transactions

Supernodes, or ‘listening nodes’, are full nodes with public, around-the-clock availability. They have a more significant number of incoming and outgoing connections, acting as the network’s redistribution points, and ensure every node has an accurate, up-to-date copy of the blockchain. Since these nodes are always on, they need more bandwidth and processing power than full nodes. 

If the entire Bitcoin network requires an update, supernodes send it, relying on their uptime and established connections to many other computers. Having too many supernodes would result in network confusion, so this type of node is relatively rare despite its important role. 

Mining Nodes Validate Transactions and Manage Bitcoin’s Supply

Mining is another key aspect of the Bitcoin network. Bitcoin mining nodes store the entire blockchain and include Application-Specific Integrated Circuit (ASIC) hardware to process cryptographic hash functions and add blocks to the blockchain. Since mining nodes compete with each other to be the first to create a new block and claim a reward, they require very powerful and energy-intensive hardware. 

When miners are the first to create a new block, they receive new bitcoins, known as mining rewards. In addition to incentivising miners, this helps manage the distribution of Bitcoin’s limited supply to the market. The other key supply management component is Bitcoin halving, an event where the mining reward reduces by 50%.

Mining nodes are a revenue-generating tool for some, but setup and operational costs are high, and income isn’t guaranteed. Today, most miners are dedicated organisations with many mining rigs. Others pool resources to get more consistent returns on their efforts. 

Full Node vs Mining Node: What’s the Difference?

All mining nodes are full nodes, but most full nodes are not capable of mining since it requires powerful hardware and significant amounts of energy. Many participants in the Bitcoin network don’t have the proper resources to mine (the average laptop has enough power for an ordinary full node). However, full nodes don’t produce income, though both full nodes and mining nodes serve an essential function.

While full nodes validate transactions and blocks, mining nodes create new blocks and add transactions. They are indispensable components of the process that work together to preserve Bitcoin as a value store and fiat currency alternative. 

Lightweight Nodes Act as Simplified Payment Verification (SPV) Clients

Though full nodes don’t require as much power as mining nodes, the network still gets overwhelmed. Lightweight (or ‘light nodes’) are similar to full nodes, but they do not store a copy of the blockchain or verify every transaction on the network. Instead, they only download key header data like a hash reference number to the previous block, mining time, and ‘nonce’ (the technical term for a transaction’s ID number). With this information, light nodes can verify transactions and send information to full nodes for further processing, contributing to the Bitcoin network by reducing the workload on full nodes.

Since light nodes don’t process as much data, they require less from their host’s hardware. For this reason, they were once the go-to node for mobile wallet applications. Light nodes are becoming increasingly rare as the average device becomes more powerful. Today, they primarily provide Simplified Payment Verification (SPV) services.

The Lightning Node Expedites Transaction Processing

Bitcoin transactions can get slow and expensive during peak periods; lightning nodes provide an alternative to speed up transactions. A lightning node is a full node acting as a bridge between the Bitcoin network and the Lightning Network, a decentralised payment system built on the Bitcoin blockchain. A lightning node only processes transactions sent to the Lightning Network, leveraging its technology for faster processing times. The Lightning Network may also offer extra liquidity to help expedite transactions. 

Many operators of lightning nodes charge a per-transaction fee for using their resources, which may be more affordable depending on the Bitcoin network’s traffic. Managing a lightning node could provide income that a full node wouldn’t, but revenues are often insignificant when factoring in the cost of powerful hardware (to speed up processing) and maintenance. Like mining pools, many lightning node operators share resources in hopes of improving returns. 

The Archival Node Provides a History Lesson

Archival nodes are full nodes that accept incoming connections and upload old blocks to other nodes. One of their primary functions is to provide new Bitcoin nodes with an up-to-date copy of the blockchain, as finding transaction information outside the previous 128 blocks or so contains more information than the average full node. Since these nodes store more blockchain information, they need more processing power than other nodes. 

An archival node can also become an authority node, restricting access to blockchain data as necessary. Of course, the Bitcoin community tries to refrain from doing this since it compromises the transparency many see as cryptocurrency’s most significant benefit. Still, limiting access when necessary is an important protective measure in order to maintain the security of Bitcoin. 

Masternodes Provide Maintenance and Validation Services

Masternodes are full nodes that maintain the blockchain ledger and verify transactions. They cannot add blocks to the blockchain, preserving the separation between them and mining nodes. 

Some masternodes provide additional services that most full nodes can’t. Examples include private transactions, instant transactions, treasury management, funding, and governance voting. However, none of these features are essential to the classification of a masternode. Some blockchain networks offer a financial incentive to operate masternodes, but Bitcoin is not one of them. 

Other Types of Blockchain Nodes

Bitcoin and its network proved the value of nodes, and now there are many other kinds. Below are a few more examples of popular blockchain nodes:

Pruned Full Nodes

A pruned full node is a device that can’t download and store the entire blockchain due to limited storage capacity, but it can verify transactions and participate in consensus. These nodes automatically delete the oldest blocks as they add new ones in order to maintain a size they can handle. This node type is prevalent for blockchains with a standardised block size, such as Bitcoin.

Staking Nodes

Whereas Bitcoin operates based on the PoW consensus mechanism, some altcoins operate based on Proof of Stake (PoS). Staking nodes provide operators with a financial incentive to operate full nodes and contribute to the overall stability of a token. The Bitcoin blockchain doesn’t support this, but virtual currencies like Ethereum, Cardano, Tezos, and Cosmos do. 

The PoS consensus mechanism requires less power and hardware resources than PoW, but participants generally have to put up some kind of collateral. The exact rules of participation vary from token to token. For example, one might have to purchase and ‘lock up’ a certain amount of a token or spend a minimum amount of time on the blockchain for eligibility. The number of stakeholders may also affect the size of rewards.

Authority Nodes

Another alternative to PoW is Proof of Authority (PoA). In the consensus method, the network designates certain nodes as authorities, and these nodes are able to control the network themselves, performing the duties of creating and validating new blocks on a blockchain. Authority nodes see most use in private networks outside of the cryptocurrency markets. Like other blockchains, networks using PoA require a majority of nodes to reach consensus before the formal addition of a new block.

The Importance of the Bitcoin Network in the Cryptocurrency Space

When a person or group calling themselves Satoshi Nakamoto published the Bitcoin white paper in 2008, it was more of a thought exercise than something capable of changing the world. Even then, Nakamoto explained how the blockchain worked and the role nodes played in verifying transactions. A community quickly arose to put Nakamoto’s theories into practise, leading to today’s extensive Bitcoin network. 

As Bitcoin rose to prominence, so did disagreements over its future direction. However, it’s worth considering how similar most cryptocurrencies are to the one that started it all. Every coin has a blockchain roughly following the rules Nakamoto laid out in 2008, and software supporting digital assets is nearly always open-source. There’s a PoW vs PoS debate, but both sides agree on the need for consensus between nodes. Likewise, discussions of the proper size of a block assume that nodes will keep everything in order.

Since no one has credibly claimed to be Nakamoto, their position on these issues is up to interpretation. Some claim that something in Nakamoto’s work supports their side, even if the token in question isn’t Bitcoin. Even the ‘SV’ in ‘Bitcoin SV’ stands for ‘Satoshi’s Vision’, representing one group’s efforts to restore Nakamoto’s original code to the token. 

The Bitcoin network’s influence on the broader cryptocurrency community is undeniable. Today, Bitcoin is the most well-known digital currency, with the highest market capitalisation and greatest hash power available, and its value tends to drive the rest of the cryptocurrency market. It wouldn’t be an exaggeration to say that a node in the Bitcoin network plays a role in the entire cryptocurrency space. 

How the Bitcoin Network Can Shape the Future

If the Bitcoin network was essential to the widespread acceptance of cryptocurrencies, its role in the future economy will likely prove just as important. Many people no longer carry cash and coins in a wallet, instead relying on a card or mobile app to pay for goods and services. These options are more convenient than carrying physical money, but they give the financial institutions backing them plenty of control, making some consumers uncomfortable. Hacking, identity theft, and other security breaches are other issues consistently adding to consumers’ concerns.

Bitcoin offers a solution to these problems with similar convenience to cards and payment apps. Since Bitcoin is a peer-to-peer (P2P) financial system, there is no financial institution or central bank one must trust. An extensive node system verifies that funds move securely and appropriately. Since Bitcoin isn’t part of a financial institution, hackers don’t have a central target. With a secure private key, wallets are encrypted and inaccessible to others, though hacks and scams remain a possibility.

As the world becomes increasingly interconnected, Bitcoin reduces transactional complexity. The global Bitcoin network allows seamless transactions using the same currency in New York City, Paris, Tokyo, Moscow, or Cape Town, South Africa. With no geographic limitations on where a node can be, the Bitcoin network has unique qualities to facilitate better global commerce. 

Bitcoin Nodes Make the Future of Money Possible

So, what is a Bitcoin node? It’s a computer connected to the Bitcoin network, performing critical functions to secure and authenticate the blockchain. Nodes broadcast data to all participants, verify and store transaction information, and facilitate mining. Furthermore, they communicate directly with one another to eliminate the need for a centralised authority, working independently to ensure consensus. Anyone can have their own node, making Bitcoin more transparent and accessible. 

There are multiple kinds of nodes, each performing an essential function for the stability of the overall Bitcoin network. Full nodes hold the entire Bitcoin blockchain and verify transactions, while mining nodes add blocks to the blockchain and regulate the supply of bitcoins in circulation. A lightning node helps finalise transactions more quickly, while archival nodes ensure every computer has an accurate copy of the blockchain. Different types of nodes offer nearly anyone a way to contribute to the network. 

Bitcoin is a revolutionary technology, changing how we think about currency, transaction and data storage, distributed security, and more. Industries from real estate to healthcare now take advantage of blockchain technology, and through it all, nodes are there to protect and validate sensitive information. 

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