Understanding nodes and their functions in the blockchain

Nodes are an incredibly important part of any blockchain. Without them, blockchain technology as we know it simply wouldn’t be possible. If you’re interested in cryptocurrency and web3 — and in particular if you’re interested in contributing to a public blockchain yourself — then it is important to understand what exactly nodes are used for.

In this AAG Academy guide, we’ll cover that as well as the differences between a node and a miner, what a masternode is, and how you can run a node yourself.

What is a node?

The whole concept of a blockchain can be a little difficult to understand for newcomers to the cryptocurrency industry. However, not all aspects of the blockchain are complicated. Nodes, for example, are one of the most critical components of any blockchain — as well as one of the simplest. That’s because a node is essentially any device that contributes to the larger network.

In other words, a node is usually a computer of some kind that is capable of running the blockchain protocol’s software. Each holds a complete copy of the blockchain’s distributed ledger — a list of every transaction that has ever taken place — which is constantly updated every time a new transaction is processed and validated.

What do nodes do?

Nodes serve two key functions, which are:

Transaction validation
Nodes play a key role in validating cryptocurrency transactions that take place on a blockchain. A node receives a transaction whenever a user attempts to send cryptocurrency, and then it broadcasts it to the rest of the network. All the nodes participating in the network check the transaction to ensure that it can go ahead, which only happens once consensus is achieved.

The validation process ensures that the user attempting to send cryptocurrency has enough funds in their wallet to cover the transaction, as well as any fees involved. It also confirms the sender is authorized to use those funds by ensuring that they possess the private key required to access the wallet they are attempting to send cryptocurrency from.

Once a transaction is validated, it is grouped together with other transactions in a block. Each new block is added to the wider chain (hence the name blockchain), following the rules set by the network’s consensus mechanism. An updated ledger is then distributed to all nodes.

Security
Nodes also play an incredibly important role in making a blockchain secure. They not only ensure that transactions are authorized using the validation process outlined above, but they also come together to prevent bad actors from carrying out fake or fraudulent transactions.

As we touched upon above, a transaction cannot be validated before it has been checked by all available network nodes. At least 51% of those nodes must agree that it is genuine and possible before the transaction can go ahead. So, if a bad actor wanted to falsify a transaction, they would need to take over at least 51% of all nodes.

That is an incredibly difficult task and highly unlikely — especially with larger blockchain networks that have thousands of nodes connected at any one time.

What is the difference between a miner and a node?

It is important not to confuse standard nodes with blockchain miners. Although a miner is a type of node, it plays a specialized role when it comes to transaction processing. After a transaction has been validated by standard nodes and grouped together with others, it is then the responsibility of a miner to confirm the transactions in each group.

Once the transactions are confirmed and the mining process itself is complete, the miner then relays that to the rest of the network. It is at this point that the standard nodes review the block once again to confirm it is valid, then add the block to the rest of the chain.

This process can differ depending on the consensus mechanism a blockchain uses. For instance, with proof-of-work (PoW), miners must solve complex cryptographic puzzles to confirm each block, which requires powerful and pricey computer hardware. Proof-of-stake (PoS), on the other hand, relies on staking instead, and so miners are not necessary.

Mining is an incredibly competitive process since whichever miner is chosen by the network to confirm a new block receives cryptocurrency as a reward for their efforts. That’s why miners are constantly buying more sophisticated and more powerful mining rigs that have a greater chance of being chosen ahead of their competitors by the network.

The biggest cryptocurrency that uses miners and the PoW consensus mechanism is Bitcoin. Ethereum, the second-biggest cryptocurrency on the planet in terms of market value, also used PoW until 2022 when it switched to using the PoS system exclusively, thanks in large part to the environmental benefits that come with not relying on power-hungry computer hardware.

What are masternodes?

There are actually a wide range of different nodes used by today’s blockchain networks, one of which is the masternode, which many decentralized projects take advantage of for specialized functions or for providing certain features. Masternodes do not add new blocks to the chain like standard nodes, but in most cases, they do play a part in verifying them.

Masternodes can also be used for governance — such as governing voting events when projects propose changes that token holders can vote on — and executing protocol operations. Furthermore, they may be used to store the entire blockchain data. These nodes must be online 24/7, with a dedicated server and a dedicated IP address so they can always be found.

It’s worth noting at this point that every cryptocurrency project is set up differently. One project’s blockchain structure can be entirely different to that of another project, despite them appearing similar on the surface. With that being the case, some projects may use masternodes in other ways that we haven’t covered here, and some may not use them at all.

Masternodes are incredibly costly to set up since they require powerful hardware, much like mining rigs, as well as a considerable stake in a cryptocurrency project. Running a masternode is, in some ways, considered simpler than running a mining rig, particularly when it comes to competition. However, it can be less profitable, depending on the project.

References

• What is a node
• Blockchain node
• Master node cryptocurrency
• What is masternode