What is a Crypto Node? Bitcoin Nodes Explained | Ledger (2024)

Nov 22, 2021 | Updated May 31, 2023

Crypto jargon can be hard to understand. But it’s worthwhile to know exactly how the blockchain works and the less obvious ways it can benefit you. Here, we explain – what is a crypto node and why should you run one.

Bitcoin is about community. It is about decentralization and bringing power and control into the hands of the people. The network creates a free network where the very users are responsible for the operation and management of the ecosystem. To achieve this, Bitcoin’s creator Satoshi Nakamoto introduced the concept of blockchain nodes and miners. And in this article, we will delve into these concepts.

But before we get there, let’s start with the basics.

What Is a Crypto Node?

A crypto node is a single computer that can interact with and is part of, a blockchain network. To explain, blockchains are regulated by a group of people on the network who control nodes. Each node in the network is a single computer that carries all of the blockchain’s information. This allows it to verify and record new transactions as they happen, then broadcast them to the wider network.

So, as there are no central entities involved, it’s this collection of crypto nodes that is responsible for recording new transactions and updating the shared ledger. It also filters out transactions that may be trying to trick the system or break the rules.

The more crypto nodes you have, the more difficult it becomes to cheat the entire system. That’s because a hacker will have to hack each node to be successful, which is pretty much impossible.

One such network using crypto nodes is Bitcoin. Those familiar with the history of Bitcoin know that it uses a decentralized model and on its network, a node is a computer running the Bitcoin Core software.

What Is a Crypto Node For?

Firstly, crypto nodes each have a copy of the whole blockchain. This includes the entire ledger and all of its transactions. Next, they can communicate with each other. This is integral to keep the nodes in consensus, i.e., making sure the blockchain is recorded the same in each crypto node. After that, it checks the validity of each blockchain transaction and rejects those that aren’t. And finally, they offer a copy of the blockchain to any new node that wishes to join the network.

Essentially, these capabilities work together to allow Bitcoin nodes to verify and record transactions without a central entity. Instead of working like traditional finance, Bitcoin relies on the power of the collective.

That’s the reason the pseudonymous Satoshi Nakamoto developed Bitcoin in the first place. His vision was to offer people a financial system that could do everything banks did for us but without the need to trust a central entity. And Bitcoin does achieve this goal. Bitcoin nodes run in a completely decentralized manner, offering a peer-to-peer network for digital payments while being a secure, immutable, and transparent ledger.

What Are The Types of Crypto Nodes?

There are 2 main types of nodes: Full Nodes and Light Nodes. Each of these exists for separate reasons and has different capabilities.

Full Node

Put simply, a full node is a program that fully validates transactions and blocks. Full nodes can also support the bitcoin network by communicating with other full nodes to accept, validate and relay transactions and blocks to the network.

SPV Clients (Light Nodes)

On the other hand, an SVP client or “light nodes” are a little different. Firstly, they do not store the entire blockchain like their heavyweight counterparts. Instead, they just download ‘blockheaders’. Without getting too technical, it means they don’t require as much storage capacity. Instead, these crypto nodes’ only task is to verify transactions in the blockchain using simplified payment verification (SPV).

Crypto Nodes Vs Miners: What’s the difference?

Very often, the words ‘nodes’ and ‘miners’ are used interchangeably. So, let’s clarify that confusing point first.

A miner is a dedicated computer system that runs high computing hardware to add new blocks of transactions to the blockchain. But more importantly, a miner uses computational power to solve the puzzle to “mine” new coins, and that’s the basics of Bitcoin mining.

This is where it may be confusing to some, as each miner is a node. However, not every node is a miner. To explain, anyone can run a crypto node to help the Bitcoin consensus run without mining a single coin.

So now you know what nodes are for and their different types, but do you know how they work?

How Do Bitcoin Nodes Work?

Bitcoin is a specific blockchain network and the crypto nodes that support the network work in a very specific way. To explain, let’s suppose Bob wants to send 1 BTC to Alice. When Bob enters the amount and Alice’s Bitcoin wallet address and confirms the transaction from his wallet, the details of the transactions are sent to a few of the thousands of Bitcoin nodes. The first few crypto nodes to receive this transaction cross-check it with their existing records and see if Bob’s wallet has 1 BTC that he is trying to send to Alice. If all looks fine, the first set of nodes passes it onto the other nodes, who then verify and pass it on to the next level of nodes. This goes on until all the Bitcoin nodes have received the transaction details.

Upon verification of the details of Bob’s transaction, it is sent to a mempool. This is where many more BTC transactions are queued in order to be approved.

Then the miner, who finds the right solution for a block with Bob’s transaction, shares it with the entire network of Bitcoin nodes for approval.

Now, the final verification lies in the hands of the Bitcoin nodes. So, they verify the solution and ensure that all transactions included in that block are fair and follow the rules of the network. If the transaction follows the rules of the blockchain, they agree to add the new block. Thus Bob’s transaction details along with that of others included in that block are irreversibly confirmed and recorded.

The miner who found the solution first walks home with freshly mined Bitcoin, and the process repeats all over again.

Reasons To Run a Crypto Node

So participants only running nodes, and not mining crypto itself, do not receive rewards. So you may be wondering, what’s the point?

Well, sometimes, there’s more to things than money. Crypto nodes also let us participate in the network in a number of other ways. For example, you can also run a crypto node to:

Contribute to the Security of the Network

Let’s use Bitcoin as an example. Bitcoin’s network is about decentralization. So, when you run a crypto node, you increase the number of nodes on the Bitcoin network. Thus making the network more decentralized and secure. Crypto nodes on Bitcoin also ensure that the users and miners are playing by the rules of the network.

Running a Bitcoin node also offers privacy from any third-party wallet provider. When you run a node, you first need a wallet directly created on the Bitcoin network without any service provider. It is stored in your system and thus offers complete privacy to you.

Have Complete Autonomy Over Your Assets

People use Bitcoin so they do not need to trust any third party. But that logic goes out of the window when you use a third-party website to check Bitcoin transactions. Who knows if their system is operating properly or not? In this case, running a crypto node makes you your source of truth, allowing you to verify all transactions on the Bitcoin blockchain for yourself.

To Participate in the Governance of Bitcoin

Changes to the Bitcoin network can only be made with the agreement of a majority of the nodes in the network. So, if you run a node, you have a say in network updates, such as Taproot. For this upgrade to be implemented, nodes had to signal their support to the network and reach a consensus on it.

Even in the event of a chain split due to disagreement between fellow network participants, you can only choose which chain you want to support if you’re running a full node. This was seen in 2017 during a Bitcoin update called SegWit. Here the Bitcoin chain was split due to disagreement between nodes, and Bitcoin Cash was created.

Running a Crypto Node Is More Affordable Than Mining

Unlike mining, it needs no computing hardware or rigs. You can run a full node on most basic computers that come with just 350 GB, 2 GB RAM, and an unmetered internet connection.

How To Run a Bitcoin Node

Sounds great? Want to do this? Learn how to run a Bitcoin node with Ledger. Once you do that, your Ledger Live application will directly rely on your node instead of a Ledger-run node to update your balances.

Bitcoin is About Freedom and Decentralization

Bitcoin is a financial revolution. It creates a more trustworthy system by directly distributing its operation responsibilities across its own users. In this financial system, there are no central entities. There are almost no corruption possibilities, and there are near-zero network failure chances.

All that’s there is freedom and decentralization. Anyone who uses Bitcoin experiences this freedom. But more than that, everyone has a fair chance to make this network more decentralized and secure. So, if you want to experience both freedom and the part you can play in securing Bitcoin, it’s worth setting up your own node.

Knowledge is Power

Trust yourself and keep on learning. Check out our informative – and highly entertaining – School of Block episode.