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The Classroom

PATHWAY F) Blockchain Basics

chapter 2/4

Crypto Nodes: What Are They And How Do They Work?

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— Public blockchains use a decentralized infrastructure that relies on a network of computers called nodes, rather than centralized servers like the internet.

— Crypto nodes maintain the latest record of blockchain networks and consistently verify and approve new transactions. They also ensure that everyone follows the rules set forth by the network. 

— There are many types of nodes with differing use-cases, such as miner and validator nodes which create and propose new blocks.

— In this article, we dive into what a crypto node is, how they work, and what they mean for blockchain transactions.

Crypto nodes: They are the unsung heroes of the blockchain, the whole reason decentralized networks are even possible. Their job is simple; they offer ways to propose, approve and process transactions without a centralized entity. 

Without nodes, you couldn’t use the blockchain for all sorts of decentralized purposes such as DAOs or even just the peer-to-peer transfer of digital assets. Essentially, nodes make sure transactions are correct every time, and processed effectively. Since the blockchain is immutable–or at least it’s extremely difficult to alter or tamper with a blockchain transaction–getting it right the first time is important. In fact, the security of the network depends on it!

However, no one said getting thousands of computers to agree on something was an easy feat. Ensuring every transaction is correct and relying on a network of strangers is a difficult task, and as a result, the way each blockchain approaches crypto nodes can differ slightly. Each network offers different incentives (and punishments) for their actions on a network or even ways of approving transactions. This all affects how the nodes work, how many there are in a network, and even the types of different nodes there are. 

So in this article, we’ll dive into crypto nodes, explaining what they do, their different types and the difference between miners and nodes.

But before we get there, let’s start with the basics. In fact, what are crypto nodes exactly?

What Is a Crypto Node?

A crypto node is a single computer that can interact with and is part of, a blockchain network. On most blockchains, each node is a single and separate computer which stores all of the information on the blockchain, also known as a distributed ledger. Since every node has a copy of the same information, they can verify each other. 

This allows the nodes to verify and record new transactions and broadcast them to the network without the help of a central entity. 

The more crypto nodes you have, the more difficult it becomes to cheat the entire system. That’s because tampering with a blockchain will—more often than not—require a bad actor to control over 51% of the nodes. This becomes practically impossible on popular networks, simply due to the sheer number of nodes you would have to control.

What Is a Crypto Node For?

Firstly, crypto nodes store the data necessary for a blockchain to operate. This can include the entire distributed ledger and all of its transactions. The other important job crypto nodes have is communicating with each other. This is integral to keep the nodes in consensus, i.e. making sure every node has the same copy of the chain. It’s basically the method the nodes use to synchronize, making sure the blockchain is the same for everyone.

Beyond that, some crypto nodes also have other jobs, such as verifying blockchain transactions and rejecting those that don’t fit the mold. Plus they can also offer a copy of the blockchain to any new node that wishes to join the network. 

Essentially, these capabilities work together to allow crypto nodes to verify and record transactions without a central entity. Instead of working like traditional finance, public blockchains rely on the power of the collective: People all around the world operating nodes.

Crypto Nodes Vs Miners Vs Validators: What’s the Difference?

Very often, the words ‘nodes’ and ‘miners’ are used interchangeably in crypto, but they’re not the same thing. So, let’s clarify that confusing point now:

A miner is a dedicated computer system that can add new blocks of transactions to the blockchain. To mine new coins or validate transactions, this miner must solve the puzzle–a complex mathematical computation–which requires a considerable amount of energy. This crypto mining mechanic is what keeps a proof-of-work blockchain secure. Simply, bitcoin mining is too costly to consider trying to cheat the system.

This is where it may be confusing to some, as each miner is a node. However, not every node is a miner. For example, anyone can run a crypto node to help the Bitcoin consensus run without mining a single coin. Plus, beyond those distinctions, there are also differences across different types of networks too.

For example, on proof-of-stake networks, nodes are operated by validators instead of miners. But even on proof-of-stake networks you can also set up your own node without validating transactions. Thus nodes and validators are not synonymous either.

Types of Crypto Nodes

There are 2 main types of nodes: Full Nodes and Light Nodes. Each of these exists for separate reasons and has different capabilities.

Full Node

Put simply, a full node stores a full copy of the network’s digital ledger. These types of crypto nodes  build the foundations for most blockchains; storing the history of the chain and communicating with other full nodes. These are also the nodes responsible for providing a copy of the chain to new nodes: They really are the backbone of a network, which is why most blockchains will have these types of nodes.

Miner Nodes 

Miner nodes are the participants responsible for verifying transactions and adding them to the blockchain on a proof-of-work blockchain. Mining requires a lot of computational power to solve complex puzzles. However, they also receive cryptocurrency rewards in return for their work. 

Validator Nodes

Validator nodes are similar to miner nodes, but on a proof-of-stake network instead: They also validate transactions and create blocks. However, they don’t have to solve complex computational puzzles, they are chosen in relation to the amount of funds they lock in the system. Like miners though, they also receive rewards for creating blocks.

Light Nodes

SPV clients, also called light nodes, are a little different. Firstly, these types of nodes do not store the entire blockchain like their heavyweight counterparts. Instead, they just download ‘block headers’. Without getting too technical, it means they don’t require as much storage capacity. Instead, these crypto nodes’ only task is to verify transactions in the blockchain using simplified payment verification (SPV). It’s important to note that not all blockchains use these types of nodes. Mainly, they are popular in blockchains that have limited storage space per block, such as Bitcoin.

How Do Crypto Nodes Work?

Crypto nodes on different blockchains can vary slightly, but let’s look at a generic flow of how crypto nodes work and what they do.

Crypto Nodes Distribute the Signed Transaction

When you sign a transaction, the details are sent to a set of nodes.  The first set of nodes passes it onto the other nodes, who then pass it on to the next level of nodes. They do this until the transaction is included in a block or discarded.

Nodes Then Verify Transactions in the Mempool

As the transaction is distributed, it enters a mempool in each node. Initially, it has a queued status. But from there, the nodes must validate the transaction. Once the majority of nodes validate that the transaction is valid, it moves to a pending status. This means that the transaction is ready to be added to the chain. Conversely, if the majority of nodes decide a transaction is not valid, it will be discarded.

Nodes Add Transactions To Blocks and Broadcast Them To The Network

Once the transaction moves to a pending status, miner or validator nodes are able to add the block to the network. At the point a miner or validator wins the block and adds it to the chain, the transaction becomes immutable. To explain, making any alteration to the transaction would require the majority of nodes’ approval, which could be thousands of nodes in more popular blockchains. This simple mechanism keeps the chain secure. 

Nodes Have Incentives (and Deterrents) To Ensure Good Behavior

At this point, it’s important to note that some nodes are responsible for adding blocks to the network, which will usually earn them cryptocurrency rewards.

On a proof-of-work blockchain like Bitcoin, this requires a large amount of computational power in order to solve a complex cryptographic puzzle. This means that miners have an incentive to add valid blocks to the chain, but they also have a deterrent from behaving dishonorably—simply the energy cost of mining wouldn’t be profitable without the block rewards.

On a proof-of-stake blockchain, participating nodes also receive block rewards, but as a deterrent for bad behavior, these chains have a different method. To explain, validators must lock up a significant amount of their funds as collateral. Then if they behave honorably, they receive more rewards. If they behave maliciously, their collateral—also called a stake—is slashed. This mechanism ensures that nodes behave as they should, even without an ongoing energy cost and expensive equipment.

Crypto Nodes: Why Are They So Important?

Crypto nodes are integral to the security of blockchain systems. When trying to execute tasks in a decentralized manner, the only option is a peer-to-peer system, and the only way to manage one effectively is via a blockchain network. Nodes allow blockchains to validate transactions in a fair way—and without a centralized entity taking a cut. 

Plus, the more participants there are operating nodes, the harder it is for bad actors to collude or take control of the network. They ensure that the users and miners are playing by the rules, with both features making the network more decentralized and secure.

In short, no matter what you’re doing on a network, you’re going to encounter nodes. In fact, you may even want to start operating a crypto node yourself! Whether you fancy running a full node, or even becoming a miner or validator node, there’s an option for you. You can even fund a validator node directly through Ledger Live. 

Nodes are the basis of blockchain systems; without them, there would be no blockchain storage in the first place. Together, nodes provide the whole infrastructure for a blockchain network—which is why understanding them is so important.

Knowledge is Power

Trust yourself and keep on learning. Check out our informative – and highly entertaining – School of Block episode.

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