What is a Bitcoin Node?

In the Bitcoin network, nodes fulfil a very important role. You can imagine them as ‘guardians’, who are constantly monitoring the Bitcoin blockchain to distinguish legitimate Bitcoin transactions from non-legitimate ones. They validate every transaction and essentially ensure that each Bitcoin (BTC) is only spent once to prevent double-spending and reinforce trust and security in the Bitcoin network. By classifying transactions as valid or invalid, they create an immutable register of all operations. Through this process, they ensure that all participants share the same, reliable information and thus reach a consensus on the state of the blockchain.

Types of nodes

There are different types of nodes in the Bitcoin network, each with its own tasks and characteristics. Full nodes validate transactions and blocks, while light nodes provide simplified verification and mining nodes are involved in the creation of new blocks. 

Let’s take a closer look at the specific functions of each node type on the Bitcoin blockchain.

Light node

There are also “light nodes” or “lightweight nodes” that depend on full nodes for functioning. They require significantly less download and storage capacity than full nodes since they only download blockheaders from the Bitcoin blockchain and therefore do not store the entire blockchain. Their only task is to verify transactions in the blockchain using simplified payment verification (SPV). 

Full node

The terms ‘node’ and ‘full node’ are often used synonymously, but there is actually a difference between the two. 

Here’s the definition of a full node according to official Bitcoin documentation:  

“A full node is a program that fully validates transactions and blocks. Almost all full nodes also support the network by accepting transactions and blocks from other full nodes, validating those transactions and blocks, and then relaying them to further full nodes.” 

Pruned Node

Pruned nodes are a type of full node, but they do not store the entire transaction history of the blockchain. They download blocks from the beginning of the chain until it reaches a certain limit and then delete the oldest blocks. After downloading and verifying the entire blockchain, nodes delete older data to save storage space but retain all necessary information to ensure network security. It is called a pruned node because the subtree of the decision tree has been removed, thus the pruned node takes up less space on the hard drive.

A full node validates transactions and blocks and accepts transactions and blocks from other full nodes to support the Bitcoin network. 

Archival Node

Archival nodes store and archive the complete transaction history of the blockchain. They are important to the network because they provide a comprehensive data source and can be used to restore and verify the blockchain, which is particularly useful for services such as block explorers and wallets.

Archival full nodes, on the other hand, host the entire blockchain, taking up a lot more hard-drive space than the pruned full node. Archival nodes are classified into further subcategories. Archival full nodes include mining nodes, staking nodes and authority nodes. 

Archival full nodes, on the other hand, host the entire blockchain, taking up a lot more hard-drive space than the pruned full node. 

Mining Node

Mining nodes combine transactions into blocks and add them to the blockchain by solving complex cryptographic tasks. This process is called “mining”. Each miner aims to be the first node to create a new block in the blockchain and prove that they have performed the required work; this is known as ‘Proof of Work’. Once the entire network verifies a transaction, a new block is added to the existing blockchain and the miner receives a reward.

In the Bitcoin whitepaper, Satoshi used the word “node” as a synonym for “miner” but over the years these two definitions branched out somewhat. While technically nodes, “miners” use specialised ASIC hardware to add blocks to the Bitcoin blockchain and receive rewards for doing so. The letters ASIC stand for “application-specific integrated circuits” which have been designed for a particular use, such as Bitcoin mining. 

Staking Nodes

The consensus principle underlying the validation of transactions of staking nodes is Proof of Stake. To participate in the creation, approval and validation of blocks, stakers are required to hold certain amounts of coins. Besides invested coins, staking algorithms also consider time in the blockchain, the total number of stakers in the blockchain, as well as a random factor in determining who validates a block.

Authority Nodes

Yet another consensus model is Proof of Authority, which is more popular in private chain setups. Nodes called “authorities” are designated for creating and validating new blocks in the blockchain. The majority of authorities is required for validation.

Validating Node

Validating nodes are active in networks based on the Proof of Stake model. These nodes validate transactions by staking their own coin holdings, helping to keep the network secure and operational. As a reward for their services, they receive transaction fees or new coins. They play a crucial role in maintaining a decentralised and secure network.

Masternodes

Finally, masternodes are another type of full node. Besides storing the entire blockchain and validating transactions, masternodes stabilise and secure their entire ecosystem and may offer services such as private transactions, instant transactions, treasury management and funding and governance voting. 

Everyday examples of using nodes

As a central part of the infrastructure of blockchains, nodes are used in various places:

Nodes in financial networks: Nodes can validate transactions on a blockchain network like Bitcoin's and ensure that those transactions comply with network rules

Nodes in supply chains: Nodes can be used in logistics to ensure that all participants in the supply chain receive real-time updates about the location and status of products

Nodes in Smart Contracts: Nodes in crypto networks like Ethereum can execute smart contracts that automatically enforce contracts once predefined conditions are met

Wallets: The wallets that need to process transactions are usually equipped with a light node – a type of network node that requires minimal resources as it is limited to communicating with the blockchain and relies on full nodes to provide the necessary information.

The role of nodes in the blockchain consensus 

Consensus in a decentralised network is defined by the rules based on which the network operates and confirms the validity of the information contained in the blocks. Maintaining the consensus between nodes, verification of transactions and voting on proposals are all among the main tasks of full nodes. 

In a decentralised network like Bitcoin, consensus is at the heart of ensuring that all transactions are valid and that there is no double-spending. The full nodes play a crucial role as they enforce the rules of the network. They confirm the validity of the information contained in the blocks and ensure that there is agreement on the status of the blockchain through voting and verification. Each node contributes to the integrity and security of the network by supporting consensus and thus ensuring the immutability of the blockchain.

Security and Bitcoin nodes

The security of the Bitcoin network depends largely on the distribution and reliability of the nodes. Each node contributes to overall security because it independently verifies and confirms transactions. This decentralisation makes attacks more difficult because it is not a single entity but many independent actors that ensure the validity of the blockchain. The Bitcoin full nodes act as a trust anchor in the network because they maintain a complete copy of the blockchain and continuously check against the rules of the network, which makes attempts at manipulation almost impossible.

How to operate a Bitcoin node    

To operate a Bitcoin node, you need the appropriate software, which is usually available as an open-source program. This software can be run on a computer or dedicated hardware. Basic requirements include a continuous internet connection and enough storage space to store and process the entire Bitcoin blockchain, which can include hundreds of gigabytes of data.

Setup begins with downloading and installing the Node software. This is followed by the synchronisation of the blockchain, which can take several hours to days depending on internet speed and computer performance. During operation, the BTC Node verifies transactions and blocks to maintain the integrity of the blockchain, thereby contributing to the security and decentralisation of the network.

Most Bitcoin applications and solutions provide Bitcoin Node installation files available on Linux, Windows and macOS. A node is usually installed on Linux computers. There have been some incidents where attackers have integrated malware code into the blockchain, which, though not a direct threat to the nodes, can cause antivirus programs to raise an alarm and slow down the system.

Can you make money with Bitcoin nodes?

Operating Bitcoin nodes is primarily a contribution to strengthening the network and is not primarily focused on making money. The nodes validate transactions and blocks, contribute to the distribution of the blockchain, and strengthen the consensus model, which is crucial to the overall system. 

While mining nodes can earn profits by creating new blocks and collecting transaction fees, full nodes, which validate transactions and secure the network, do not receive direct rewards in the form of Bitcoins. The financial incentive for operating a node could therefore be more indirect, for example for the purpose of supporting the network. In some cases, nodes that offer additional services, such as Lightning Network nodes, may generate revenue by charging fees for these services. However, such capabilities are more suitable for advanced users who are willing to invest additional time and resources, as they require deeper technical understanding and management.

What distinguishes Bitcoin nodes from those of other blockchains?

Nodes in the Bitcoin network have some differences from nodes in other blockchain systems. Bitcoin is the first network of its kind to use the Proof of Work consensus process. This implies that special nodes, known as miners, solve complex mathematical problems to create and add new blocks to the blockchain. However, it is important to understand that not all nodes in the Bitcoin network perform mining tasks. While mining nodes can earn rewards in the form of Bitcoins by creating new blocks, full nodes are responsible for verifying and confirming transactions without receiving any financial reward. This separation of tasks contributes to the security and efficiency of the entire network. The way mining nodes work requires significant computing power and energy consumption. In contrast, many newer blockchains, such as those based on the Proof of Stake mechanism require significantly less energy, since the validation of transactions and blocks is not secured by computing power, but by the ownership of tokens in the network.

In addition, the size of the Bitcoin blockchain is significant, which increases the storage and bandwidth requirements for running a full node. Nodes of other blockchains, on the other hand, may have different requirements, depending on the size and complexity of the respective blockchain. Some blockchains also offer specialised nodes with different roles, such as Masternodes on the Dash network, which provide advanced features for network services and receive rewards for it.

Future trends and developments in Bitcoin nodes 

Understanding how Bitcoin nodes work and what they mean is very important for anyone interested in trading and investing in cryptocurrencies. Nodes are the cornerstone of the Bitcoin blockchain and ensure security, transparency and decentralisation. Future developments could focus on further decentralising nodes, improving network security, and integrating new privacy protocols. Technological advances like the Lightning Network – a time-locked off-chain payment channel that enables fast off-chain Bitcoin payments – promise faster transaction times and lower costs, which could make Bitcoin more viable for everyday use. 

What software can you use for a Bitcoin full node?

There are various software available to run full nodes on the Bitcoin blockchain:

• Casa Node: Easy-to-use, user-friendly solution for running your own Bitcoin full node on a minicomputer like the Raspberry Pi

• RaspiBlitz: A solution from Fulmo known for its community support and extensive configuration options

• BitBoxBase: A plug-and-play solution designed for security and ease of use

• Nodl: Allows users to run a BTC Full Node alongside a Lightning Network Node

• MyNode: Aims to make running your own network node easier and more accessible through a variety of premium services

The Bitcoin Halving Event

A pivotal event in the Bitcoin network is the Bitcoin halving;  a mechanism programmed into Bitcoin's code that reduces the mining reward by half approximately every four years or 210,000 blocks. This event is crucial as it directly impacts the rate at which new bitcoins are generated, effectively slowing down the supply increase over time. The halving event is designed to be similar to the effect of diminishing returns in mining precious metals like gold, thereby reinforcing the scarcity and potential value of Bitcoin. As the reward for mining new blocks is halved, the reduction in new Bitcoin supply can lead to changes in its price, making this an event of significant interest to investors and market analysts.

For investors keen on tracking this important event, the Bitcoin halving countdown is invaluable. These tools enable investors to make informed decisions based on the anticipated changes in Bitcoin's supply dynamics. As each halving potentially impacts Bitcoin's value and miners' profitability, it becomes a focal point for discussions and analyses within the cryptocurrency community.

Want to learn more about Bitcoin? 

Why not delve deeper into Bitcoin and other crypto topics? Take a look at our other helpful Academy articles and learn all about tools and trading with Bitcoin or other cryptocurrencies.