Blockchain technology has found applications in a wide range of industries, including financial services, entertainment, and supply chain management. And the core mechanism that allows any blockchain system to distribute data – decentralizing storage and verification across a variety of independent participants – is called nodes.
When it comes to data storage, the cloud essentially refers to someone else’s computer. All software is connected to hardware at some location. Similarly, a crypto node supports a specific network, such as Bitcoin or Ethereum, by maintaining public records of the blockchain’s transactions. In certain cases, such as with Zcash, some transactions are end-to-end encrypted, meaning that the nodes keep a public record of the encrypted transaction data, also known as ciphertext, which helps enhance privacy for the involved parties. (As Head of Global Regulatory Relations at Electric Coin Co., I work at one of the organizations that support the Zcash protocol.)
Most people run nodes on their computers at home or build node devices using a Raspberry Pi (a series of small single-board computers developed in the United Kingdom by the Raspberry Pi Foundation in association with Broadcom). Some companies run nodes on corporate hardware. Regardless of the form the hardware takes, the node gives the user their own full copy of the blockchain.
All things considered, if you’re not operating your own node, you’re depending on others’ hardware to maintain the public ledger during crypto transactions. Nodes play a crucial role in shaping our online interactions, transforming the way we store and exchange information and conduct transactions. This explainer will delve into various types of crypto nodes and their significance.
At the heart of every blockchain network is a decentralized, distributed ledger that stores transactional data using nodes. The blockchain’s public ledger is maintained by a multitude of computers across the globe with different people and organizations running nodes.
Full nodes maintain a complete copy of the blockchain, validating transactions and ensuring that consensus rules are enforced.
In contrast, light nodes store only a subset of the blockchain data, allowing for faster synchronization and lower resource requirements. Although light nodes may not maintain a complete copy of the blockchain, they can still independently validate certain aspects of transactions using cryptographic methods, such as verifying ownership and signatures. However, light nodes might rely on full nodes to confirm that a transaction is part of the current consensus, ensuring there is no ongoing blockchain fork or rollback attack.
There is also a third category of nodes, called mining nodes. In networks that use Proof-of-Work consensus algorithms (described below), mining nodes compete to validate and add transactions to the blockchain, receiving a reward in the form of the network’s native cryptocurrency for their efforts.
Blockchain networks employ various consensus algorithms to ensure that nodes agree on the validity of transactions and the state of the distributed ledger. Some of the most common consensus algorithms include Proof-of-Work, Proof-of-Stake, and Delegated Proof-of-Stake.
Proof-of-Work is a consensus algorithm used in some cryptocurrencies such as Bitcoin, where nodes compete to solve complex mathematical puzzles in order to create new blocks. The first node to successfully solve the problem is rewarded, incentivizing participation in the process.
Nodes act as the protectors of the blockchain, as they not only hold a copy of the entire ledger but also validate new transactions and maintain consensus among participants.
Proof-of-Stake is a consensus algorithm used in blockchain technology to validate transactions and create new blocks. In PoS, nodes “stake” a portion of their cryptocurrency holdings to participate in the validation process. Depending on the implementation of the consensus algorithm, nodes with more significant stakes may have a higher probability of being selected to validate transactions.
Last but not least, Delegated Proof-of-Stake is a consensus algorithm used in blockchain technology to validate transactions and create new blocks.
DPoS is a variation of PoS where a limited number of trusted nodes, known as delegates or validators, are chosen by the network participants to validate transactions and maintain the blockchain. This approach aims to improve scalability and efficiency while still maintaining decentralization and security.
The robustness of blockchain networks can be attributed to several key properties, such as Sybil Resistance, censorship resistance, and Byzantine Fault Resistance.
Sybil Resistance refers to a system’s ability to withstand malicious actors who create multiple fake identities, known as Sybil nodes, to compromise the network. Nodes in a blockchain network contribute to Sybil resistance by enforcing strict rules and protocols for joining and participating in the network. For example, in PoW-based blockchains like Bitcoin, nodes need to solve complex mathematical problems to create new blocks and validate transactions, which requires significant computational power. This requirement creates a barrier to entry for Sybil attackers, as controlling a majority of nodes would be prohibitively expensive and resource-intensive.
Censorship resistance encompasses a system’s capacity to thwart external forces or authorities from suppressing or altering information, as well as its ability to prevent the arbitrary exclusion of participating actors. In a blockchain network, nodes contribute to censorship resistance by maintaining independent copies of the ledger and verifying new transactions through a consensus mechanism. This decentralized approach ensures that no single node or group of nodes can unilaterally alter the data on the blockchain, as changes would need to be approved by a majority of nodes in the network. This design makes it extremely difficult for external forces to manipulate or control the flow of information within the network.
In blockchain networks, Byzantine Fault Resistance plays a crucial role in maintaining the security and stability of the system. A Byzantine Fault is a condition in a distributed computing system where components may fail and present different symptoms to different observers, making it difficult for the network to reach a consensus on the state of the faulty component. Byzantine Fault Tolerance is the ability of a distributed system to continue functioning correctly despite the presence of such faults.
In blockchain networks, nodes must reach consensus on transaction validity and the distributed ledger’s state. Byzantine Faults, caused by malicious actors or unintentional failures, challenge consensus and blockchain integrity.
The term Byzantine Faults originates from the Byzantine Generals Problem, illustrating consensus difficulties in distributed systems. It is essentially a game theory problem that describes the difficulty decentralized parties have in arriving at consensus without relying on a trusted central party. Imagine generals deciding to attack or retreat. A collective decision is crucial as uncoordinated actions lead to disaster. Disloyal generals may vote for sabotage strategies. And, differing locations and unreliable communication channels further complicate the situation.
Decentralized systems must achieve consensus despite faulty or malicious components and unreliable communication channels. Byzantine Fault Tolerance enables distributed systems to function correctly amidst such faults.
Nodes serve as the backbone of blockchain networks, providing essential functions such as maintaining the distributed ledger, validating transactions, and ensuring stability and security.
The decentralized nature of blockchain networks, powered by nodes, enables non-intermediated activities and transactions, ensuring that no single node or party can act as a gatekeeper or censor information on the blockchain. By comprehending the roles nodes play in offering Sybil Resistance, censorship resistance, and Byzantine Fault Resistance, we can recognize the resilience and potential of blockchain technology. This paves the way for continued innovation, allowing us to harness the full potential of blockchain technology and drive its transformative impact across various industries.
Disclosure: As an employee of Electric Coin Co., I am a long-term holder of ZEC tokens. Not legal or financial advice.