Nodes are critical aspects of blockchain security. Broadly speaking, a cryptocurrency node is a participant in a blockchain network. Without blockchain nodes, there can be no blockchain.
The key feature that makes blockchain technology unique, and part of why cryptocurrency has been so revolutionary, is decentralization. Bitcoin and most other cryptocurrencies aren’t controlled by a central server or group of servers. Instead, the network functions in a peer-to-peer (P2P) manner. People interact with each other directly rather than through a third-party intermediary, thanks to network nodes.
Recommended: How Do Bitcoin Transactions Work?
How Do Blockchain Nodes Work?
For decentralization to work, there has to be a way for the network to maintain its integrity. Everyone has to be assured that all transactions are valid and that no one on the network is cheating by double spending or reversing transactions.
The process of everyone on the network agreeing that transactions are valid in the absence of a central authority is known as “achieving consensus.” It is the network nodes that achieve this consensus among users, helping to make the blockchain secure.
Consensus Algorithms
Consensus refers to the rules by which a blockchain network operates and confirms the validity of information written in blocks. Confirming this information can be complicated with large networks involving large numbers of people, hence the need for a consensus algorithm.
The original consensus algorithm is Bitcoin’s proof-of-work (PoW) algorithm. Proof-of-Stake (PoS) is another popular consensus algorithm that works somewhat differently but seeks to achieve the same goal. Many DeFi protocols utilize PoS. Both algorithms rely on full nodes for the validation of transactions and enforcement of network rules.
For the sake of simplicity, in this article we will assume that someone is interested in learning about Bitcoin nodes that run on PoW.
Anyone can download the entire Bitcoin blockchain and validate blocks. This increases both the security and the decentralization of the network, as more copies of the ledger come into existence and can be referenced by others. Bitcoin nodes can be run by anyone in the world with the proper hardware and an internet connection.
7 Types of Blockchain Nodes
To recap: A node is one computer in a network of many that follows rules and shares information.
The term “node” is sometimes used interchangeably with the term “full node,” but they are not the same. A “full node” is a computer in the Bitcoin network that stores and synchronizes a copy of the Bitcoin network’s entire blockchain history.
Full nodes are important for several reasons, not the least of which being that they vote on proposed changes to the network. When more than 51% of full nodes don’t agree on a proposal, it gets skipped. Sometimes this leads to a hard fork, as was the case in 2017 with the Bitcoin Cash fork.
Recommended: What Happens When Bitcoin Forks?
While there are several types of full nodes, there are also lightweight nodes. Below, we’ll highlight both lightweight and full nodes.
1. Light Nodes
Lightweight nodes or “light nodes” do not hold full copies of the blockchain. Light nodes only download blockheaders, saving users significant download time and storage space. Nodes of this nature depend on full nodes to function and are used for simplified payment verification (SPV).
2. Archival Full Nodes
Most often, when someone uses the term “full node,” they are referring to an archival full node. This is the primary node type that forms the backbone of a blockchain network. Archival full nodes are servers that host the entire blockchain, with every single transaction recorded in their databases. The main task of these nodes is to validate blocks and maintain consensus.
Archival nodes can be broken down further into two subcategories: nodes that can add blocks to the chain and those that cannot.
3. Pruned Full Nodes
A pruned full node is one that saves hard disk space for its users by “pruning” older blocks in the blockchain. This type of node will first have to download the entire blockchain from the beginning. After that, it will begin deleting blocks beginning with the oldest and continue until the node only holds the most recent transactions up to a set size limit. If a node operator were to set the size limit to 250 MB, then a pruned full node would hold the most recent 250 MB worth of transactions.
4. Mining Nodes
In crypto mining, miners are either full or light nodes that try to prove they’ve completed the work required to create a new block. This is where the term “proof-of-work” comes from. To accomplish this task, miners have to either be an archival full node themselves, or get data from other nodes to learn the current status of the blockchain and how to work on finding the next block. (Those who seek to run mining nodes might want to take into account crypto mining electricity costs.)
5. Authority Nodes
Authority nodes are used by consensus algorithms for networks that aren’t fully decentralized, including Delegated Proof of Stake and Proof of Authority. In these networks, either the development team will decide how many authority nodes are needed and who will run them, or the community could vote for the decision. The task of these nodes is the same as full nodes in other networks.
6. Masternodes
Masternodes cannot add blocks to a blockchain. They only serve to validate and record transactions. Running a masternode can earn users a share of the network’s rewards. Doing so requires first locking away a certain amount of money in the form of the network’s native token.
7. Lightning Nodes
Lightning nodes don’t quite fit the mold of any of the nodes discussed so far. The main idea of a lightning node is to establish a connection between users outside of the blockchain, enabling what are referred to as “off-chain transactions.”
This reduces the load on the network and allows for much faster and cheaper transactions. Bitcoin lightning transactions typically cost 10 or 20 satoshis, or the equivalent of a fraction of a penny.
How to Set Up and Run a Full Node
Running a full blockchain node comes down to the following:
• Choose a blockchain (Bitcoin, for example)
• Acquire the hardware and/or software needed
• Start running the node
The first thing required for running any kind of node is the necessary hardware. This often involves a small computer like a Raspberry Pi. There are three different ways to run a full node. They include:
• Hosting a node in the cloud via Amazon Web Services or Google Cloud
• Running a node on your local device (which requires a lot of hard disk space and RAM)
• Using a “node-in-a-box” solution or building one from scratch.
After that, it’s just a matter of maintaining and monitoring the node.
The Takeaway
People might choose to run full nodes for a variety of reasons, including increased privacy or a desire to support their network of choice. Lightweight nodes and full nodes alike come with wallets that can be used for making cryptocurrency transactions. Full nodes provide greater privacy, as outside observers have a hard time distinguishing between transactions being processed by the node and transactions sent by the person running the node.
Photo credit: iStock/A stockphoto
SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
2Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2023. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.
First Trade Amount
Bonus Payout
Low
High
$50
$99.99
$10
$100
$499.99
$15
$500
$4,999.99
$50
$5,000+
$100
SOIN0721306
