What is a Node and Why Should I Operate One?
| — Bitcoin replaces banks with a decentralized infrastructure that relies on a network of computers called nodes and miners.|
— Nodes maintain the latest record of the Bitcoin network and consistently verify and approve new transactions. They also ensure that everyone is following the rules set forth by the network.
— Miners, on the other hand, create and propose new blocks that can be added to the existing blockchain.
— In this article, we dive into what a node is, how they operate, and why you should operate a node by yourself.
Crypto jargon can be hard to understand, but it’s worthwhile to know exactly how the blockchain works and the less obvious ways it can benefit you. Here, we explain – what is a node and why should you run one?
Bitcoin is about community. It is about decentralization and bringing power and control in the hands of the people. The network creates a free network where the very users are responsible for operation and management of the ecosystem. To achieve this, Bitcoin’s creator Satoshi Nakamoto introduced the concept of nodes and miners. And in this article, we will delve into these concepts.
But first, let’s go back to basics
At this time, we mostly use our bank accounts for our financial transactions. So, what do banks really do? They perform three primary functions.
1. They help us store our money
2. They provide an infrastructure for transactions
3. They keep a record of all of these transactions and update the different accounts
However, the problem with banks is that they are centralized. So, when we keep our money with the banks, we’re actually entrusting that system with full control over our finances. While we can still transact, the rules are defined by the banks, and we don’t have ultimate control nor ownership over our own assets.
Besides, poor management, security issues, downtimes, and corrupt practices make the centralized banking system even more discouraging. Just a little over a decade ago, the world faced a financial crisis because banks failed to regulate how they invested customers’ funds and kept functioning simply to bag bigger profits. That combined with a few other factors led to a crisis that saw millions of people losing their jobs and life savings.
That’s the reason the pseudonymous Satoshi Nakamoto developed Bitcoin — a blockchain network that works as a peer-to-peer network for payments. His vision was to offer people a financial system that could do everything banks did for us but without the need to trust a central entity. A trustless system.
And Bitcoin does achieve this goal. It is a secure, immutable and transparent ledger that helps you store your funds and operate transactions with anyone across the globe.
What you’re probably asking yourself is: who the hell operates the system if there’s no bank?
Instead of a central entity that verifies and records transactions, Bitcoin has a network of computers called nodes and miners. When you initiate a Bitcoin transaction, its details are propagated through this network that works in unison to verify that you truly own the funds that you are trying to spend.
Below, we explore what nodes and miners are and how everything falls in place.
Don’t mix up miners and nodes
Very often, the words ‘nodes’ and ‘miners’ are used interchangeably. So, let’s get that out of the way first.
A node in the Bitcoin network is any computer that is constantly running the Bitcoin Core — a software that enables computers to download and store the entire Bitcoin blockchain and also verify and record the new transactions as they happen. As there are no central entities involved, it’s these thousands of nodes that always tally every new transaction with their existing records and filter out transactions that may be trying to trick the system or break the rules. And a higher number of nodes simply means that the records are stored on more systems, and so, it becomes more difficult to cheat the entire system.
A miner, on the other hand, is a dedicated computer system that runs high computing hardware to add new sets (read blocks) of transactions to the blockchain and generate new Bitcoins with each block. But to add new transactions, you first need to know what transactions are requested, which is why every miner first needs to be a node that can receive and record new transactions.
On the contrary, every node does not have to be a miner. Anyone can run a node with simple hardware for the purpose of securing the Bitcoin network and having a real-time record of all Bitcoin transactions.
Confused? Don’t be. For a better understanding, we’ll break down a Bitcoin transaction and see how it works.
Bob, Alice, nodes, and miners
Nodes start the job
Suppose Bob wants to send 1 BTC to Alice. When Bob enters the amount and Alice’s Bitcoin wallet address and confirms the transaction from his wallet, the details of the transactions are sent to a few of the thousands of Bitcoin nodes. The first few nodes to receive this transaction cross-check it with their existing records and see if Bob’s wallet has 1 BTC that he is trying to send to Alice. If all looks fine, the first set of nodes pass it onto the other nodes, who then verify and pass it on to more nodes. This goes on until all the nodes have received the transaction details.
Upon verification of the details of Bob’s transaction, it is sent to a memory pool where many more BTC transactions from other Bitcoin users are waiting for confirmation and addition to the existing blockchain.
Miners take over
This is where Bitcoin miners come in. The job of these miners is to take the pending transaction from Bob and other Bitcoin users, put them together in a block, and add them to the Bitcoin blockchain. How do they do this?
Imagine Bitcoin mining as an extremely difficult jigsaw puzzle-solving competition where the person is given the puzzle almost solved with only a few missing pieces. Now, the missing pieces are mixed up with thousands of other random pieces. And the person who is able to find the right piece first and complete the puzzle walks away with the prize. There’s no algorithm you can use, it’s just a game of luck where you can implement trial and error. And the faster you try out the random pieces and strike off the wrong ones, the greater are your chances of finding the right piece.
In Bitcoin mining, that’s what miners do. They have all the details of the transactions that they need to add to the new block, and they can generate the block’s unique identifier called “hash” by running the details through an encryption technique used by Bitcoin. However, to be the one to add those transactions to the blockchain and win the Bitcoin rewards that come with it, a miner must first find that one missing piece of the puzzle called a nonce.
A nonce is a random number that is similar to the missing piece of a jigsaw puzzle that’s mixed with many other random pieces. The reason miners need this is so they can attach it to the hash of their block, pass it again through the encryption algorithm such that it results in a hash that Bitcoin recognizes as a solution to the puzzle.
Finding this one simple number can need millions of trials. And as you can guess, it’s not for a human to do. So, miners use powerful computing devices to run thousands of numbers every second and generate new hashes to see if they can find the solution. And the miner who has more computing power obviously has a better chance of finding that number.
Back to the nodes
The miner who finds the right solution for a block with Bob’s transaction first shares it with the entire network of nodes for approval.
Now, the final verification lies in the hands of the nodes. So, they verify the solution and ensure that all transactions included in that block are fair and follow the rules of the network. If everything checks for a majority of the nodes of Bitcoin, they agree to add the new block to their existing blockchain, and thus Bob’s transaction details along with that of others included in that block are irreversibly confirmed and recorded.
The miner who found the solution first walks home with freshly generated (read “mined”) Bitcoin, which currently is 6.25 BTC per block. And the process repeats all over again.
Why run a node only?
Unlike miners, participants who run only nodes do not earn any rewards. Their job is to simply maintain the latest record of transactions. But then, why should anyone run a node if it does not have any financial benefit?
Because sometimes, there’s more to things than just money. You can run a node to
1. Contribute to the security of the Bitcoin network
Bitcoin is about decentralization. So, when you run a node, you increase the number of Bitcoin nodes, thus making the network more decentralized and secure. Nodes also ensure that the users and miners are playing by the rules of the network.
Running a Bitcoin node also offers you true privacy from any third-party wallet provider. When you run a node, you first need a wallet directly created on the Bitcoin network without any service provider. It is stored in your system and thus offers complete privacy to you.
2. Have complete autonomy
People use Bitcoin so they do not need to trust any third party. But that logic goes straight out of the window when you use a third-party website to check Bitcoin transactions. Who knows if their system is operating properly or not? In this case, running a node makes you your own source of truth, allowing you to verify all transactions on the Bitcoin blockchain for yourself.
3. Get to participate in the governance of Bitcoin
Changes to the Bitcoin network can only be made with the agreement of a majority of the nodes in the network. So, if you run a node, you have a say in network updates, such as the recently implemented update dubbed Taproot. For this upgrade to be implemented, nodes had to signal their support to the network and reach a consensus on it.
Even in the event of a chain split due to disagreement between fellow network participants, you can only choose which chain you want to support if you’re running a full node. This was seen in 2017 during a Bitcoin update called SegWit, where the Bitcoin chain was split due to disagreement between nodes, and Bitcoin Cash was created.
5. It’s affordable
Unlike mining, it needs no computing hardware or rigs. You can run a full node on most basic computers that come with just 350 GB, 2 GB RAM, and an unmetered internet connection.
Sounds great? Want to do this? We have a detailed guide here to help you easily set up your independent node with Ledger. Once you do that, your Ledger Live application will directly rely on your node instead of a Ledger-run node to update your balances.
Bitcoin is about freedom and decentralization
Bitcoin is a financial revolution. It creates a more trustworthy system by directly distributing its operation responsibilities across its own users. In this financial system, there are no central entities, there are almost no corruption possibilities, and there are near-zero network failure chances.
All that’s there is freedom and decentralization. Anyone who uses Bitcoin experiences this freedom. But more than that, everyone has a fair chance to make this network more decentralized and secure. So, if you want to experience both freedom and the part you can play in securing Bitcoin, it’s worth setting up your own node.
Knowledge is power.
Trust yourself and keep on learning. Check out our informative – and highly entertaining – School of Block episode.