What are Nodes in Crypto

A cryptocurrency network is like one big decentralized bank. But this bank has no head office or single governing body. This role is taken on by many small computers around the world, called nodes. In this article, we will explain in more detail what nodes are, how they work, and how they make money.

What Is a Crypto Node?

Nodes are computers connected to the blockchain. They store all the information, transmit it, and, most importantly, verify it to prevent theft or fraud. The more nodes there are in the network, the less likely it is that the rules will be changed, data will be falsified, or transactions will be censored. It is important to note that, although they are computers, nodes are controlled by real people—validators or miners.

Cryptonodes are your personal and independent record of the entire history of the network. They are independent controllers that have no trustees. This fact allows the node operator to be confident in the true, uncensored state of the blockchain network and that their personal transactions are correct. This approach is called trust minimization.

Functions of Nodes

1. Validation. Validators verify that each transaction complies with the network rules. They also guarantee that the transaction is signed by the real owner and prevent any fraud. Especially the most common in the crypto world — double spending. Nodes reject any transaction if it does not pass at least one check.

2. Broadcasting. When sending money, the wallet sends a signal to the nearest node. It, in turn, sends the information to all its neighbors on the network. This results in instant and widespread distribution of data.

3. History storage (ledger). Nodes store the entire history of all network transactions, starting with the very first block. This allows you to independently view the entire chain from start to finish without resorting to third-party services.

How Do Nodes Work?

The node's work is based on continuous communication with other network participants and strict verification of each piece of information. The node acts as a very vigilant postman and controller. Here is a step-by-step algorithm of how the node processes a transaction and reaches consensus in the network:

• Step 1: Receiving a transaction. Nodes exchange messages with each other using special network protocols. A full transaction check begins as soon as a node receives a new transaction or a new block from another node.

• Step 2: Format and signature verification. The node verifies that the transaction is formatted correctly and that it was signed by the valid account owner using their private key (i.e., it is not a forgery).

• Step 3: Status verification (prevention of double spending). The node checks its local copy of the blockchain and verifies that the sender has sufficient funds to complete the transaction and that this money has not already been spent in another confirmed transaction.

• Step 4: Rejection or addition to the “waiting room”. Any transaction will be rejected if it fails at least one of the checks. Only after successfully passing all checks the transaction will be considered valid and sent to the mempool (or UTX pool). This is the so-called “waiting room” for transactions that have not yet been confirmed.

• Step 5: Formation of a new block. Next, all transactions that have entered the mempool are selected by a block generator. These can be miners (e.g., in the Bitcoin network) or validators (e.g., in the Ethereum blockchain). The transactions are then included in a new block.

• Step 6: Transmission and final verification. After formation, the new block is transmitted across the network. Other nodes receive it and perform a full verification to ensure the authenticity of the transactions and compliance with all consensus rules.

• Step 7: Reaching consensus. Only after successful verification the new block is added to the local copy of the blockchain of all participating nodes. This achieves collective agreement (consensus) on the current state of the network.

Types of Nodes

Nodes are divided into types depending on the tasks they perform, the amount of information they can store, and the place they occupy in the network.

Full Nodes

Full nodes contain the entire transaction history, starting from the moment the network was created. They are considered the most reliable and secure, as they can perform a complete and independent verification of all transactions. Operators of these nodes can use them to provide other users with access to data.

The amount of data in large networks is constantly growing; for example, by 2025, the Ethereum blockchain will exceed 3 TB for a full node, which will require a significant amount of storage.

Light Nodes

Light nodes only store block headers and cannot perform full verification. They rely on full nodes to verify authenticity. They mainly work with online and offline wallets, which have limited memory and computing resources.

Archive Nodes

These are super-complete nodes. They remember not only the history of transactions but also the state of the network at any specific point in time in the past. Such nodes are critical for blockchain explorers, auditing, and analytical services. The storage volume for Archive Nodes is enormous: for Ethereum, it can reach 18–20 TB.

Validator Nodes and Miners (Consensus Nodes)

These are nodes that actively participate in the consensus process, responsible for creating new blocks and their final confirmation:

• Miners. Operate on the mechanism Proof-of-Work. They are responsible for adding transactions to the chain using enormous computing power.

• Validators. Operate on the mechanism Proof-of-Stake. They require a stake and are responsible for verifying transactions and reaching consensus with other validators.

Masternodes

These are nodes that perform special service functions, such as providing instant or private transactions, and can also participate in network governance (voting). A significant amount of collateral must also be locked up to launch them.

Node Economy

Node operators are only paid if their node actively participates in the consensus process and block generation (validators, miners, masternodes). Archive nodes and full nodes that do not participate in consensus (i.e., simply store data and verify transactions) do not usually receive direct financial compensation from the network. The latest most often run them not for money, but for ideological reasons (support for decentralization) or for the personal security and reliability of their funds.

Nodes participating in consensus earn money through two main mechanisms:

1. Issuance of new coins (Block/Epoch Reward), when the network generates new coins that are automatically credited to the operator for successfully creating or confirming a block. This is done by miners.

2. Transaction fees (network fees, or gas), which users pay to have their transactions included in a block. This is done by validators.

For validators in PoS networks (where a deposit is required), earnings directly depend on how reliably their equipment works. The system provides for penalties (slashing) for unreliable operation or shutdowns. Therefore, validators are forced to invest in professional equipment (uninterruptible power supplies, backup internet) — this is no longer just a hobby but a business that requires serious infrastructure.

How to Run a Node?

Launching a node is a technically complex but very important process that allows for maximum decentralization. For simplicity, it can be broken down into four key stages.

Stage 1: Research and Project Selection

The initial stage is to evaluate the blockchain; it is important to choose projects that the operator believes in. You need to clearly define your goal: do you need a full node for personal security, or do you want to run a validator node to earn money (which requires a financial deposit, for example, 32 ETH for Ethereum).

Next, you need to select the necessary equipment. The hardware requirements for a basic full Bitcoin node and a basic full Ethereum node may differ.

Stage 2: Technical Setup and Synchronization

Setup — downloading and configuring special software (client) for the selected blockchain network. For example, Ethereum requires two types of software working together: an execution layer client (such as Geth), which processes transactions and manages the network state, and a consensus layer client (such as Lighthouse), which is responsible for proof-of-stake and block synchronization.

The most difficult stage is synchronization. It requires the most time and resources. At this stage, nodes download and verify the entire blockchain history. The process requires very intensive disk activity, which greatly depends on the speed of your SSD.

Stage 3: Monitoring and Updating

After successful synchronization, the node requires constant attention. Operators must regularly monitor its performance, update the software (to prevent vulnerabilities and comply with new network rules), and monitor the status of network parameters. If you are running a node for a new project, you often need to register on the test network (testnet) first and only then move on to the main network (mainnet).

Nodes are the heart and lungs of the cryptocurrency ecosystem, embodying the principle of decentralization. They ensure the integrity, security, and stability of the network, acting as independent auditors. Running a node, regardless of its type, is a crucial act of support for the decentralized economy. The more independent nodes there are in the network, the more difficult it is to manipulate data and the more secure the future of the entire cryptocurrency system becomes.

We hope that after reading our article, you understand what cryptocurrency nodes are. But if you still have any questions, you can ask them in the comments.