What is a Bitcoin Node

What is a node in relation to the blockchain?

A node is any computer that connects to the corresponding crypto currency of your choice by downloading the open source software. Here it basically serves as a connection point for data transfers in interaction with other participants (nodes) of the network around the world, which together form the backbone of the blockchain.

Full nodes and lightweight nodes

In principle, every computer that downloads the corresponding software for a crypto currency is referred to as a network node. This is accompanied by the storage of the blockchain, which can either be completely or partially downloaded. As a result, the nodes are divided into lightweight nodes and full nodes:

Lightweight nodes only download parts of the blockchain, which they can use to verify the previously mined blocks by hash matching the corresponding block sequences. This ensures the integrity of the network, because this validation process runs in parallel on all network nodes with a corresponding task.

Full nodes store the complete blockchain and mine / encrypt the transaction blocks by generating hashes that sequentially connect each block with the previous one according to internal rules. You will be rewarded in coins for this task. The rule-compliant execution of this action is then checked and validated by the lightweight nodes on the basis of the resulting block ... or not.

What is the role of a node in the blockchain?

When the open source software is downloaded, the blockchain is saved and all ports (channels for incoming and outgoing connections) are opened, the consensus rules implemented in the software are recognized, according to which the now active network nodes of the crypto blockchain are theirs assigned role fulfilled.

In the case of Bitcoin, for example, this means that each network node confirms or rejects every new transaction in accordance with the consensus rules of the Bitcoin developers. This happens at all nodes of the blockchain and with every transaction equally and guarantees the decentralization of the network.

It still applies - the more nodes, the more stable the network is and the faster it can act. The independent sending and receiving of transactions via the respective (block) chain structure is another very practical function that a node fulfills. However, if you only operate a wallet (digital purse) via an external client, this competence is outsourced.

Basic democratic financial system with a pinch of guerrilla

Every user, who now acts as a node with his computer and the correspondingly installed software, can also actively shape the network and the rules that it should follow, e.g. by installing updates or rejecting them.

Even if the desired changes contradict the software consensus or do not achieve majorities, this does not mean that a group of nodes, i.e. a group of users, cannot implement them. We remember the User Activated Hard Fork in Bitcoin 2017 and 2018, which programmatically forced an increase in the block size from 1MB to initially 8MB and finally 32MB and thus forced the spin-off of Bitcoin Cash.

Mining Node vs. Validation Node

Now what is the difference between nodes that seal transactions and those that validate? In principle, both operate in the so-called proof-of-work system.

The miners have the task of solving a cryptographic puzzle to encrypt the amount of content of a block (plain text of all transaction details bundled in a block) using a defined hash function, so that this block can then be considered a legitimate part of the chain.

Each hash function of a new block contains hash codes from the previous block and a quasi wax seal is created for all blocks in the chain. For this work process (proof-of-work), the miners are remunerated with Bitcoin.

The task of the validation nodes is now to check the correctness of the hash functions and thus the block information on the basis of the software-based consensus specification and to share it with all other network nodes. The mining node therefore fulfills a partial function compared to the validation node.

Proof of Work vs. Proof of Stake for crypto currencies

We have already mentioned the disadvantages of proof-of-work-based crypto currencies on various occasions. Above all, this includes the possibility of a hostile takeover of the network and its manipulation through a concentration of computing power on the part of the miners that exceeds 51%.

The basically horrendous energy consumption that this method costs is another problem that goes without saying. Some development teams are therefore increasingly relying on proof-of-stake methods (e.g. Ethereum). Here, the level of "participation" in coins decides who is allowed to validate transactions and to what extent and who is liable for them with their stake at the same time.

In such a system, the miners play a subordinate role (with a combination of POW and POS) or they are completely obsolete (pure POS). However, POS is only financially lucrative in terms of the distribution per validation if it has a certain minimum stake. Compared to POW, however, it makes up for this disadvantage with low process costs.

There is disagreement about which method will prevail or be forced in the future. Combined methods, such as the Casper network upgrade from Ethereum, offer a good case study in this context to test both methods in practice in the near future.