How network nodes are used in cryptocurrency

pamella97 (21)in #cryptocurrency • 3 years ago

We explore the different types of network nodes in cryptocurrency and the roles they play in verifying transactions.

Network nodes in cryptocurrency

In this guide we discuss network nodes, masternodes and lightning nodes. Before we begin we first need to understand what a blockchain network is. Fundamentally it is a technology that enables us to store and transfer information securely with the data integrity intact. Blockchain is a type of distributed ledger technology (DLT) – as the name implies it must be conducted on a distributed basis across the world.

But how is this distribution achieved? Through network nodes.

What is a network node?

You can think of a node (or rather set of nodes) as the foundation of a blockchain. If an electronic device has a working internet connection and by default an Internet Protocol (IP) address – it can be used as a node. The primary function of a node is to retain a copy of the blockchain. Sometimes a node can also be used to process a transaction. It is important that each node retains a copy of the blockchain since this defines the blockchain as both distributed and decentralised.

Nodes help ensure that the integrity of the information is not altered. If someone trys to retroactively tamper with the blockchain it would only appear changed on that node. The remaining nodes will display the ‘true’ copy of the blockchain. This helps categorise the network as decentralised since no central authority can have full control over the information being stored on a blockchain.

Below is a visual representation of all live Bitcoin nodes taken at the time of writing. The image has been sourced from bitnodes.earn.com.

Bitcoin live node map

The image portrays 10,604 Bitcoin nodes that were reachable when the image was captured. Each dot on the map represents a single node.

Each node is loaded with Bitcoin software. The code in the software enables nodes to find and establish a connection with other nodes – which in turn forms the network.

Through this connection, nodes are able to send or receive information such as transactions, blocks or other relative data.

If you ever hear the term ‘full node,’ it refers to a fully validating node on a network which will validate each block and transaction that occurs.

What is a masternode?

A masternode is notably different from a regular node because it will have unique functions. A masternode can be utilised to direct send or instant send transactions – including private ones.

They typically boast increased capabilities and so it requires substantially more investment to get one up and running. In return for this investment, you can receive a greater block reward.

A block reward is given to data miners when they successfully add a block of data to the blockchain. For reference, Bitcoin currently has a block reward of 12.5 Bitcoin (this number is halved every four years, it began at 50) whereas Ethereum’s current block reward is 3 Ether.
What is a lightning node?

To understand the purpose of lightning nodes in cryptocurrency you first need to understand the Lightning Network. The Lightning Network is a layer 2 scaling solution. While Bitcoin can facilitate peer-to-peer transactions, previously it has not been able to facilitate them as quickly as mainstream payment processors such as Visa or PayPal.

The Lightning Network was designed to enhance transaction throughput. In theory, though this is not necessarily the case, Bitcoin could process an unlimited amount of transactions with the Lightning Network.

A lightning node is simply a node that supports the Lightning Network. The Lightning Network opens a channel between two participants in the network which allows those participants to transact between each other. If a third participant had a channel open with the second one – the first participant could actually send a transaction to the third one.

The idea behind this is simple: a participant can transact with another one in a couple of ‘hops’, as long as the ‘routing’ is known.

Below is a visual representation of lighting nodes and how they are connected to each other, taken from 1ML.com.

Visual representation of Lightning nodes

This site is a useful tool for viewing lightning nodes because it also depicts which nodes are connected to other nodes.

The Lightning Network functions on top of the Bitcoin network. Therefore the Lightning Network has its own protocol for communicating ‘lightning’ transactions and a lightning node will follow this protocol to communicate with other ones.

Essentially a regular node will be booted with Bitcoin software that enables one node to connect to another node. In comparison, a lightning node functions by creating a channel which enables it to send/receive information with another lightning node.

Hopefully this brief introduction has helped you to understand why nodes are important. Interested in hearing more about the Lighting Network? Discover how the Lightning Network recently surpassed a record 700 Bitcoin in network capacity.

How network nodes are used in cryptocurrency

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