Bitcoin (BTC) is a decentralized peer-to-peer network made of computers, or nodes, that runs the Bitcoin software and accepts a set of proof-of-work (PoW) consensus rules to validate and broadcast transactions on the blockchain. This process takes place without the mediation of a third party, making blockchains untrustworthy mechanisms.
In traditional payment methods, transactions are validated by centralized parties such as banks and payment processors who check that the user has enough money available to make that purchase.
In the Bitcoin blockchain, traditional third-party payment systems are replaced by a distributed network of node operators and miners who validate transactions without censorship or permission.
Learning what nodes do and how they work helps to understand what happens behind the settlement of a transaction. Anyone can become a Bitcoin node operator and participate in securing the network by simply downloading the Bitcoin Core software, thus making the blockchain transparent, unchangeable and decentralized.
What is a Bitcoin Node?
Nodes are the pillars of the Bitcoin network. These nodes continuously monitor the blockchain and its complete transaction history to prevent access to illegitimate transactions that attempt to use their Bitcoin twice fraudulently, also known as the dual-consumption issue.
Any computer that downloads the Bitcoin software that will join the Bitcoin network is called a node. The most popular full-node client and software implementation is Bitcoin Core; the latest release can be found on the GitHub page.
A node contains the entire history and chronology of the Bitcoin blockchain, which is like a general ledger, and contributes to the security of the Bitcoin network through the consensus mechanism because nodes will reject any transaction that violates consensus rules.
How many Bitcoin nodes are there? It is difficult to assess the exact number of active Bitcoin nodes, as users can choose to connect privately so as not to reveal or count them.
There are very conflicting numbers between one source and another. Some sources only estimate that there are just over 13,000 Bitcoin nodes. On the other hand, popular Bitcoin Core developer Luke Dash Jr. estimated that around 83,000 Bitcoin Core nodes were active in January 2021 while they recorded a sharp decline in 2022 to about 50,000.
The data is even more alarming, considering that over 200,000 Bitcoin nodes ran at the top of the bull market in 2017. The more active and connected nodes to the Bitcoin network, the more robust and decentralized it becomes.
What are nodes in a blockchain?
The backbone of blockchain networks is based on the Bitcoin structure, which was the first to lay the foundation for the technology. Therefore, understanding the principles of Bitcoin nodes will help to understand how most blockchains work. They only have different protocols with different rules, but the functional aspect remains the same.
The main function of blockchain nodes is to ensure that network transactions and blocks are legitimate and follow the protocol rules. They must guarantee that the data and the network are reliable.
Typical nodes that maintain the infrastructure of a blockchain are master nodes and miner nodes. They receive greater block rewards because they use higher resources to strengthen the network.
However, master nodes do not add new transactions or blocks to the blockchain as regular nodes or miner nodes. A more comprehensive explanation of this type of node can be found later in the article.
How do blockchain nodes work?
Nodes validate and broadcast transactions to the network. These transactions that are displayed as “pending” are picked up by a miner or a mining pool that will add them to the blockchain’s universal book.
Instead of confirming each transaction, miners will group pending transactions into blocks. The verified block is spread over the entire network and sent back to all nodes to ensure that the block is valid and adopts the network rules.
Once validated, the nodes add the new block to the previous series of blocks, thus creating a blockchain and achieving the final settlement of the transaction.
Types of blockchain nodes
Since transaction verification and broadcasting is a time and resource consuming service, nodes are divided into light and full nodes to speed up the validation process. Full nodes confirm all transactions by downloading the complete history of the blockchain, while light nodes only download the key header data.
The main types of Bitcoin nodes are full, light and mining nodes.
Full sheet music
They are called full nodes because they thoroughly verify that all the rules of the Bitcoin protocol are followed. Full nodes must confirm that all transactions performed in the Bitcoin network are legitimate and prevent the issue of double consumption, which means that bitcoins being processed must not have already been used elsewhere.
A full node must download every transaction that has ever been executed, all new transactions and all blockheads while storing data on each unused transaction output until it is used.
This is why full nodes need to download the entire history of the blockchain, each block and transaction and check that they follow Bitcoin’s consensus rules.
For example, one rule they want to check is that blocks only create a certain number of Bitcoin (currently 6.25 per block, until the next halving of 2024). They can ensure that transactions and blocks are in the correct data format or that a transaction output cannot be used twice in a single block chain. A transaction or block that violates the consensus rules is rejected.
Think of Bitcoin full nodes as servers. If you run your node, you trust your server to send transactions to the network. If you do not, you are relying on someone else’s node (server) to validate transactions. In Bitcoin terms, operating your own node means achieving sovereignty and total control over your own money.
Light or light nodes will only download the essential data from processed transactions, be used as wallets and connect to full nodes. They only download the block header, which is summarized by a block that contains a hash reference to the previous block, the mining time, and the nonce (unique identification number) for previous transactions.
Light nodes process only small parts of the blockchain instead of the entire dataset, as in entire nodes. They are ideal for nodes that do not have much storage or processing capacity and are more cost effective to own than full nodes.
A light node has the task of verifying whether transactions were included in a block through simplified payment verification (SPV). It helps keep the blockchain network decentralized, but does not validate all transactions and does not store a copy of the entire blockchain.
Apart from storing the entire copy of the blockchain, mining nodes also use mining equipment and software to solve complex computational problems with the aim of extracting Bitcoin and generating new blocks to add to the blockchain.
Until 2010, a simple domestic CPU could still be used as a mining node. However, as the Bitcoin network expanded enormously, a CPU was no longer sufficient to recover the cryptocurrency, so more expensive and energy-intensive mining equipment became necessary.
Mining nodes are very competitive because their goal is to be the first to create a new block and be rewarded with 6.25 BTC at the moment for creating it.
Bitcoin full node vs Bitcoin miner node
Full nodes and miner nodes are important components of the Bitcoin network even though they perform different functions. While a miner will necessarily drive a node, a full node runner will not necessarily be a miner. The task of the average Bitcoin node is to validate transactions and blocks, while the miner node will provide the specialized mining hardware needed to solve complex mathematical problems to create a new block and upload new transactions to it.
Contrary to popular belief, miners actually have limited power. They can potentially reorganize the blockchain and add or remove transactions, but they have to use an extraordinary amount of computing power, which makes it not worth it. A powerful miner can attack Bitcoin, but miners could not completely change or destroy Bitcoin because full nodes depend on miners only for the few features highlighted earlier.
Other types of blockchain nodes
Archive nodes are full nodes that accept incoming connections and upload old blocks to other peers on the network. The software must run in -list = 1 mode for this to happen, which is the default method.
Archive nodes can be authority nodes used when access to blockchain data must be controlled. Only authority nodes can authorize other nodes to join the Blockchain network in such a case.
Cropped full nodes have limited memory to hold the data. They are full nodes and the entire blockchain is downloaded, but when they reach a certain limit, they delete the oldest blocks to host the new blocks and maintain the blockchain size.
Master nodes are full nodes with the primary function of maintaining the blockchain book and validating the transactions. They cannot add new blocks to the blockchain.
Other nodes are Lightning nodes are a computer or software that connects and interacts with the main blockchain and the Lightning Network.
The main difference with a Bitcoin full node is that the Lightning node only verifies the transaction that interacts directly with it instead of verifying each blockchain transaction, as is the case for the Bitcoin node.
How to set up and run a full node
Several customers are providing the software to download the entire history of the Bitcoin blockchain. However, Bitcoin Core accounts for the highest number of full nodes.
To run a node, you can download the Bitcoin Core software and have it copy the entire blockchain from other nodes, and then your node will be ready to verify each block itself.
It comes with the following requirements:
To set up a new node, you must go through IBD (Initial block download) which enables node synchronization to the network at first run. Bitcoin Core will use a lot of storage space during the download, although it is possible to reduce the storage with a few simple steps.
An alternative is to run nodes on the cloud. Storage and processing resources are outsourced by connecting to a cloud service provider and installing Bitcoin Core.
Once you have downloaded the entire history of the Bitcoin blockchain, you will see new blocks added approximately every 10 minutes. Detailed instructions on setting up and running a Bitcoin node on various operating systems can be found on the official Bitcoin website.
Why is it important to run your node?
Although running a Bitcoin node does not provide any money incentive, it still provides several benefits, as explained below.
Running a full node provides more privacy and anonymity than relying on third-party servers to process your transactions. Intermediary services can reveal your wallet address and compromise your privacy;
Full control over your Bitcoin holdings;
Contribution to network security and integrity, ensuring that all rules of the Bitcoin Protocol are strictly enforced;
When it comes to forks, you decide which blockchain you want to follow. Therefore, your node is equal to having one voice in case significant changes occur in the blockchain.
Bitcoin nodes also help keep dual consumption in check, preventing users from trying to use the same cryptocurrency twice.
There is no real profit from operating a Bitcoin node, although other blockchains offer incentives through bet nodes. However, this is a discussion for another article that focuses on blockchain nodes other than Bitcoins.