What Are Cryptocurrency Nodes?

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Nodes on the Lightning Network Testnet

A node is any computer that connects to and makes up part of a decentralized network. Each dot in the featured image above and the image below represents a node in a network.

Distributed Network with Node Examples

In cryptocurrency, there are three main types of nodes you should be aware of:

Full Nodes are Full-Featured

A full node is a node that helps run a blockchain network by validating transactions, creating blocks, and securing the network. In general, they must download and maintain an updated copy of the entire blockchain, 24/7.

Anyone can run a full node on a public blockchain, but running a full node requires more resources, whether it be energy consumption, hardware, hard drive space, computing power, or even your own time commitment to keep it running.

In a Proof of Work blockchain such as Bitcoin and Ethereum, full nodes participate in the mining process. In a Proof of Stake blockchain, nodes often keep their wallet applications open and running so they are always connected to the blockchain network and recording updates.

Importance: Full nodes create the infrastructure system of a blockchain network and keep the network operational. A robust network of full nodes helps to secure the network and plays a part in democratizing the network by voting for network upgrades.

Since full nodes create the foundation of the system, they are rewarded for their work with newly minted coins, transaction fees, or both.

Light Nodes are User-Friendly but Have Limited Features

Light nodes play a more limited but very important role. Instead of helping to run and maintain the network, they allow for easy network connectivity without having to download the blockchain or use other resources.

Using a light node, users can broadcast transactions and access blockchain records. This means sending money or information, and checking account balances and past transaction history.

Importance: Light nodes allow for easy access – many are mobile apps – and make everyday blockchain usage possible. The continued development of light node applications will be integral to achieving widespread blockchain adoption.

Masternodes are Full Nodes that Require Ownership of the Native Token

Masternodes are a specific type of full node. They perform many of the same functions as full nodes, but there are a few general differences.

Like other full nodes, masternodes must maintain a full copy of the blockchain, and they operate the network by validating transactions, creating new blocks, and securing the network. In addition, masternodes also receive rewards for running the network, and anyone willing to expend the resources can run a masternode.

But unlike other full nodes, users wishing to run a masternode must stake a certain amount of coins in order to show their goodwill. This means setting aside and locking up a (usually large) number of coins, which creates an additional barrier of entry to running a masternode. Depending on the blockchain network, there may be additional requirements to running a masternode besides staking coins.

Importance: Masternodes limit network operation to part-owners of the network, creating a stronger incentive to act benevolently. If a masternode acts fraudulently, the staked coins will be forfeited and the masternode will no longer be able to participate in operating the network.

Masternodes are not required for a blockchain network to be successful (neither Bitcoin nor Ethereum uses masternodes), but they are one route blockchain networks can take to offer increased performance or capabilities. Still, the high barrier of entry to running a masternode can create a certain level of centralization in the blockchain network.

As an investor, running a masternode can be quite profitable if you believe in the network and have the resources. You can see a list of blockchains using masternodes, how many coins you would have to stake, and past investment return statistics at masternodes.pro.

The feature image shows active nodes on the Lightning Network testnet in April 2018. Image from explorer.acinq.co.