Node Definition and How it works

Most well-known cryptocurrencies, including Bitcoin and Ethereum, need the operation of a node. It plays a crucial role in the blockchain network and decentralized ledger to record cryptocurrency transactions. Find out the definition of a node and how it works in this blog.

What is a Node

A node is defined as a connection point between branches in a system. Any computing device, whether a computer or a smartphone, can support a blockchain network. The nodes in each system will connect to form a network to transfer information.

Key takeaways:

  • Nodes can connect using DNS seeds. 
  • Nodes will cross-reference with each other to determine whether a transaction is legitimate to either accept it and add it to the blockchain or reject it.
  • Each node has its role and functionalities.
  • There are three types of nodes: Full, light and Mater nodes.

Understanding Nodes

Let’s get more technical. A Node is a small computer paired with a big hard drive. Each person who runs one of these nodes has the entire blockchain downloaded. A blockchain list of all the transactions and history in the blockchain network.

Now, how does a new node join the network? It will need to discover at least one peer. There are multiple ways for a new node to find new peers. The first approach is to query a DNS using “DNS seeds”, which are DNS servers that provide a list of IP addresses of bitcoin nodes. Once the node has the IP address of a peer, it then goes through a Transmission Control Protocol (TCP) to establish a connection with a remote node.

A TCP connection works as follows: First, the local node will send a version message to the peer, which contains basic information about itself. Then the peer will check if the version received is compatible with its own. In case of compatibility, the peer will send a verack to acknowledge and establish a connection. Once a node establishes a connection with one or more peers, it can exchange info with those peers.

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Functionalities of Nodes

Even Though all the nodes participating in the network are equal, each one plays a various role concerning the functionalities it wants to support. There are four primary functions: Wallet – Miner – Network Routing – Type of nodes.


As the name indicates, a wallet is used to store cryptocurrency safely. When buying a cryptocurrency like Bitcoin, it’s stored in a wallet with a private key. Think of a private key as a password. It’s a long string of random numbers and characters assigned to your wallet. There’s also another type of key called a public key. The public key can be shared with people to send money to the assigned wallet. You can only receive transactions with your public key and send them with your private key. A wallet stores both.

There are three types of cryptocurrency wallets, and the first is a software wallet. These are usually online-based. The public and private keys are stored on the provider’s servers and allow you to access them through your account. The second is a hardware wallet. Now, if you don’t trust your keys to be stored online, you can use a USB-like wallet you store your keys. Lastly, we have a paper wallet with your private and public keys and a QR code. That means your keys are written down on paper. However, this one comes with a significant downside being easy to lose it. It’s usually used when someone has a large amount of money that isn’t accessed frequently.


They contribute to the supply of cryptocurrency and are used to solve the cryptographic puzzle of the cryptocurrency. The miners figure out complicated maths problems that confirm currency transfers.

Let’s break it down into a more detailed explanation. Once a miner comes up with the right guess of the maths problem, the mining program will select a block of the pending transactions to be added to the next block of transactions. The cryptocurrency transaction ledger and the solution are sent to the whole network (Global ledger) to be verified. Each computer that verifies the transaction updates its version of the bitcoin transaction ledger.

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After this phase, the miner will be rewarded a fixed amount as a payment for the time and effort and any transaction fees involved. To become a miner, a person will need considerable computing power, as in stacks of CPUs and GPUs.

Realistically speaking, a person can not mine with the typical day-to-day laptop since it has meagre power compared to what is needed.

Network Routing

To participate in a cryptocurrency network, network routing must support by a node. Since most cryptocurrency is built as a peer-to-peer network architecture on top of the Internet, it provides aspects that let users locate and connect with other network peers. The term peer-to-peer indicates that all nodes are equal (no hierarchy), ensuring that all nodes share the effort of delivering network services. Additionally, it approves and promotes blocks and transactions across the network. In Addition, it maintains the network’s activities and keeps the information transmitted through the network.

Type of nodes

There are 3 types of nodes. Each one has a different responsibility that can vary depending on the network. The first one is a Full node. Furthermore, a node holding a copy of the whole blockchain database is considered a full blockchain node.

A Full node can independently and authoritatively verify any transaction without outside assistance. Therefore, a Full node will first store the entire blockchain and verify the blocks added. To verify the blocks, it will first get a request to add a block of transactions to the blockchain and check them against Bitcoin’s consensus rules. A full node will immediately reject a transaction or block if it violates one of the consensus guidelines for Bitcoin.

Full nodes can also be a miner, so if a Full node runs mining software, it can be referred to as a miner. The second type is called a light node. Let’s say someone wants to handle some of the business on the phone. The user will need to have the necessary software to handle these operations. Hence it becomes a node but a partial one since the mobile device can not download the entire blockchain. Therefore, it will have some part of the blockchain to send money to someone else. Finally, there is a Master node.

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Such a node doesn’t add a new block of transactions to the blockchain. It only verifies transactions submitted by other nodes. They have some unique features, such as adding more privacy to transactions and making them instant.

Proof of work vs proof of stake

Mining new coins take much computing power because of the proof of work algorithm. It is used to reach a consensus between many nodes on a network. It works by having all nodes solve a puzzle. This computing power necessity has led to people building substantial mining farms. Therefore consuming large amounts of energy in a wasteful manner.

A new consensus algorithm, proof of stake, has been found to solve this issue. Instead of allowing everyone to participate in mining competition with one another, one node is chosen to be a validator to validate the next block. To become a validator, a node has to deposit a certain amount of coins into the network as a stake. The likelihood that a validator will be selected to make the next transaction depends on the size of the stake. If a node is selected to validate the next block, he will verify that every transaction included is genuine. The block will be posted to the blockchain if everything checks out. If a validator were caught approving a fraudulent transaction, they would lose a part of their stakes.


Nodes are essential to the smooth running of a blockchain network because they guarantee data integrity and uphold member honesty. Most blockchain networks use financial incentives, like mining or staking, to persuade users to run full nodes. Nevertheless, users voluntarily post their full nodes, regardless of incentives, since they believe in a project’s potential and want to do their part to support and maintain it.

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