IntroductionWhat is a node?What is the role of a node?What are the different types of Nodes?Conclusion
Thursday, 27 August, 2020
Classification and importance of nodes in a blockchain network
Generally, there are three distinct types of nodes – miner nodes, full nodes, and light nodes. Miner nodes can propose blocks and have the complete history of the blockchain. Full nodes have the complete history of the blockchain but cannot propose new blocks and light nodes rely on full nodes for blockchain’s history.
A key feature which has touted blockchain as a revolutionary ledger-based technology is the ability for the network to operate in a decentralised form. In a typical public permissionless blockchain, there is no single point of authority or an overall server which dictates the actions of the rest of the network. Instead, blockchain networks rely on an overall consensus which is critical to the validity and security of the data held on the network. The consensus is a mandate of standards each block on the network must adhere to. Readers who are interested in finding more about how consensus is achieved can refer to our previous bridge hereherelink1. This data is held on the network through a series of nodes. In popular blockchains like the Bitcoin network, it is typical for three types of nodes to operate on the network namely: full nodes, light nodes and mining nodes. Full and light nodes share similar responsibilities of holding and further securing data on a network, mining nodes, however, are associated with the creation of new blocks to a blockchain.
Before we explore the role of nodes, it is important to identify a blockchain is essentially an open ledger of data transactions. Anyone can view the information and different nodes types may contribute to the expansion, maintenance and/or security of data held on the network.
What is a node?
Any device connected to the blockchain can be classed as a node and examples include: servers, computers, laptops, online or desktop wallets and mobile phones. All of the nodes are connected to the blockchain in some way and are constantly updating each other with the latest information being added to the blockchain. Nodes are a critical component to the infrastructure of a blockchain. They act as further validation for the ledger and allow anyone to transparently view transactions or data conducted or held on the network. The core benefits of nodes are to ensure the data being held on the blockchain is valid, secure and accessible to authorised parties.
An example of an end-to-end working node transaction
A user has 5 ETH and they would like to transfer 2.5 ETH to a different wallet. The full nodes on the sending wallet will confirm the user has the coins available to send. Once this has been validated (by the receiving full nodes), miners will create a block and likely verify the transaction through a proof of workproof of worklink1.
What is the role of a node?
The objective of nodes is to maintain the reliability of the data stored on a blockchain. The reality is that an entire blockchain history can be stored with a single full node running it. The more nodes a blockchain has, the more decentralised it becomes and thus becoming resilient to threats such as system failures or power outages. When a new piece of data (block) is added to a blockchain, a node will communicate the block to other nodes on the network. Based on the validity of the new block and the type of node, full nodes can reject or accept the block. Once a new block is accepted by the node, the information is stored and saved on top of the pre-existing blocks.
To summarise the role of a node is to:
What are the different types of Nodes?
Nodes are typically classified into two categories: full nodes and light nodes (also known as lightweight or Simple Payment Verification (SPV) nodes). Full nodes comprise a single copy of an entire blockchain history including transactions, timestamps and all created blocks. For example, a full Bitcoin node would host all information regarding every single transaction since the start of the Bitcoin network to the present day.
Light nodes or SPV nodes are typically downloaded wallets and are connected to full nodes to further validate information stored on the blockchain. They are much smaller in size and only hold information about partial blockchain histories.
Full and Super Nodes
A full node stores all information held on a blockchain and acts a core server across decentralised blockchain networks. Each block in a blockchain is verified, authenticated and stored by all the full nodes in a network.
Figure 1: Example of Full Nodes on a Decentralised Blockchain
Source: SEBA Research
In the above illustration, we illustrate a typical blockchain network connected by six full nodes. Each full node will store a copy of all blockchain transactions which means full nodes are data-heavy. Due to this, they require more advanced computing power and energy and thus, are expensive. It’s estimated that the Bitcoin network has over 10,000 operational full nodesover 10,000 operational full nodeslink1.
Full nodes are essential to the overall security and validity of a blockchain network and have specific responsibilities which differentiate them from other types of nodes. Two key differentiating features include:
Full nodes are often run by volunteers or associated stakeholders who create full nodes to further decentralise blockchains. Running full nodes allows users to validate incoming transactions as opposed to relying on others to validate for them. It is unlikely for users who operate full nodes on popular blockchains (such as BitcoinBitcoinlink1) to receive rewards for doing so (unlike miner nodes).
Light nodes (also known as lightweight or thin nodes)
Light nodes have a similar purpose to full nodes however instead of holding a complete history of a blockchain, they typically hold a block header which seeks to support and query the validity of previous transactions. The block header is a detailed summary of a specific block and includes information relating to a particular previous block it is connected to. Information stored in the block header include: the timestamp of the block and a unique identifying number (also known as a nonce).
Figure 2: A Network of Full Nodes Linked With Light Nodes
Source: SEBA Research
As illustrated in Figure 2, light nodes are connected to full nodes (commonly referred to as their parent nodes) and allow access for light nodes to verify transactions which have been included in a specific block. Unlike full nodes, light nodes do not store a copy of a blockchain fully history and rely totally on full nodes to provide them with validated data.
Using light nodes supports a blockchain to further decentralise and grow a network. As light nodes hold and process less data than full nodes, they require much fewer resources to maintain and run. This allows a blockchain network to grow more sustainably compared to full nodes. Examples of light nodes include desktop or online wallets.
Mining nodes are nodes which produce blocks for the blockchain. You may be familiar with the term “bitcoin miners”; miners are classified as nodes. The role of these miners is to complete an action such as finding a nonce that satisfies for the current network difficulty (typically done through the brute force use of high-performance computer equipment). The first to broadcast their results and have attained validation from the full nodes is granted the right to add to the block to the blockchain. Readers can revisit how mining works in our previous article hereherelink1.
In response to solving cryptographic problems, the miner is typically rewarded through the issuance of cryptocurrencies or tokens.
Mining nodes are only responsible for creating blocks to add to the blockchain, they are not responsible for the maintenance or validity of future blocks (unlike full nodes). Mining nodes offer users the opportunity to work with others and increase the rate of receiving rewards over a period of time.
It is worth mentioning that the process of mining consumes energy and miners typically have high start-up costs in purchasing the computer power required. This has led to the popularity of mining pools which exists to pool hashrate from multiple sources/users.
Figure 3: Full, Light and Mining Nodes illustrated on a Blockchain
Source: SEBA Research
Key differences between mining nodes and full nodes
When discussing the role of full nodes we mentioned that users who run full nodes are not rewarded. Instead, they are incentivised on preserving and further decentralising the blockchain. This is different to users who mine and are typically rewarded through coinbase rewards of native tokens (such as bitcoinbitcoinlink1).
Another key difference between mining and running a full node is that a miner is required to run a full node to identify the criteria (consensus) for valid transactions. Without this information, a miner would be unable to add the correct blocks to a network and be rewarded. On the other hand, a full node does not require a miner to exist. A device (such as a computer or server) has the ability to store and receive data without being able to propose new blocks.
We have explored roles played by different types of nodes as part of the core infrastructure of a blockchain. Nodes have the ability to validate a blockchain and follow strict criteria for new blocks to join.
Nodes are crucial for secure and trusted blockchain transactions. Figure 4 outlines the core features of the node types we have discussed and the key characteristics which make them an essential part of a blockchain network.
Figure 4: Key Characteristics of Node Types
Source: SEBA Research
Subscribe to the research newsletter and get weekly updates about the latest articles of SEBAresearch
Subscribe to newsletter↓
This document has been prepared by SEBA Bank AG (“SEBA”) in Switzerland. SEBA is a Swiss bank and securities dealer with its head office and legal domicile in Switzerland. It is authorized and regulated by the Swiss Financial Market Supervisory Authority (FINMA). This document is published solely for information purposes; it is not an advertisement nor is it a solicitation or an offer to buy or sell any financial investment or to participate in any particular investment strategy. This document is for distribution only under such circumstances as may be permitted by applicable law. It is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or would subject SEBA to any registration or licensing requirement within such jurisdiction.
No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained in this document, except with respect to information concerning SEBA. The information is not intended to be a complete statement or summary of the financial investments, markets or developments referred to in the document. SEBA does not undertake to update or keep current the information. Any statements contained in this document attributed to a third party represent SEBA's interpretation of the data, information and/or opinions provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party.
Any prices stated in this document are for information purposes only and do not represent valuations for individual investments. There is no representation that any transaction can or could have been effected at those prices, and any prices do not necessarily reflect SEBA’s internal books and records or theoretical model-based valuations and may be based on certain assumptions. Different assumptions by SEBA or any other source may yield substantially different results.
Nothing in this document constitutes a representation that any investment strategy or investment is suitable or appropriate to an investor’s individual circumstances or otherwise constitutes a personal recommendation. Investments involve risks, and investors should exercise prudence and their own judgment in making their investment decisions. Financial investments described in the document may not be eligible for sale in all jurisdictions or to certain categories of investors. Certain services and products are subject to legal restrictions and cannot be offered on an unrestricted basis to certain investors. Recipients are therefore asked to consult the restrictions relating to investments, products or services for further information. Furthermore, recipients may consult their legal/tax advisors should they require any clarifications. SEBA and any of its directors or employees may be entitled at any time to hold long or short positions in investments, carry out transactions involving relevant investments in the capacity of principal or agent, or provide any other services or have officers, who serve as directors, either to/for the issuer, the investment itself or to/for any company commercially or financially affiliated to such investment.
At any time, investment decisions (including whether to buy, sell or hold investments) made by SEBA and its employees may differ from or be contrary to the opinions expressed in SEBA research publications.
Some investments may not be readily realizable since the market is illiquid and therefore valuing the investment and identifying the risk to which you are exposed may be difficult to quantify. Investing in digital assets including cryptocurrencies as well as in futures and options is not suitable for every investor as there is a substantial risk of loss, and losses in excess of an initial investment may under certain circumstances occur. The value of any investment or income may go down as well as up, and investors may not get back the full amount invested. Past performance of an investment is no guarantee for its future performance. Additional information will be made available upon request. Some investments may be subject to sudden and large falls in value and on realization you may receive back less than you invested or may be required to pay more. Changes in foreign exchange rates may have an adverse effect on the price, value or income of an investment. Tax treatment depends on the individual circumstances and may be subject to change in the future.
SEBA does not provide legal or tax advice and makes no representations as to the tax treatment of assets or the investment returns thereon both in general or with reference to specific investor’s circumstances and needs. We are of necessity unable to take into account the particular investment objectives, financial situation and needs of individual investors and we would recommend that you take financial and/or tax advice as to the implications (including tax) prior to investing. Neither SEBA nor any of its directors, employees or agents accepts any liability for any loss (including investment loss) or damage arising out of the use of all or any of the Information provided in the document.
This document may not be reproduced or copies circulated without prior authority of SEBA. Unless otherwise agreed in writing SEBA expressly prohibits the distribution and transfer of this document to third parties for any reason. SEBA accepts no liability whatsoever for any claims or lawsuits from any third parties arising from the use or distribution of this document.
Research will initiate, update and cease coverage solely at the discretion of SEBA. The information contained in this document is based on numerous assumptions. Different assumptions could result in materially different results. SEBA may use research input provided by analysts employed by its affiliate B&B Analytics Private Limited, Mumbai. The analyst(s) responsible for the preparation of this document may interact with trading desk personnel, sales personnel and other parties for the purpose of gathering, applying and interpreting market information The compensation of the analyst who prepared this document is determined exclusively by SEBA.
Austria: SEBA is not licensed to conduct banking and financial activities in Austria nor is SEBA supervised by the Austrian Financial Market Authority (Finanzmarktaufsicht), to which this document has not been submitted for approval. France: SEBA is not licensed to conduct banking and financial activities in France nor is SEBA supervised by French banking and financial authorities. Italy: SEBA is not licensed to conduct banking and financial activities in Italy nor is SEBA supervised by the Bank of Italy (Banca d’Italia) and the Italian Financial Markets Supervisory Authority (CONSOB - Commissione Nazionale per le Società e la Borsa), to which this document has not been submitted for approval. Germany: SEBA is not licensed to conduct banking and financial activities in Germany nor is SEBA supervised by the German Federal Financial Services Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht), to which this document has not been submitted for approval. Hong-Kong: SEBA is not licensed to conduct banking and financial activities in Hong-Kong nor is SEBA supervised by banking and financial authorities in Hong-Kong, to which this document has not been submitted for approval. This document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in Hong-Kong where such distribution, publication, availability or use would be contrary to law or regulation or would subject SEBA to any registration or licensing requirement within such jurisdiction. This document is under no circumstances directed to, or intended for distribution, publication to or use by, persons who are not “professional investors” within the meaning of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) and any rules made thereunder (the “SFO”). Netherlands: This publication has been produced by SEBA, which is not authorised to provide regulated services in the Netherlands. Portugal: SEBA is not licensed to conduct banking and financial activities in Portugal nor is SEBA supervised by the Portuguese regulators Bank of Portugal “Banco de Portugal” and Portuguese Securities Exchange Commission “Comissao do Mercado de Valores Mobiliarios”. Singapore: SEBA is not licensed to conduct banking and financial activities in SIngapore nor is SEBA supervised by banking and financial authorities in Singapore, to which this document has not been submitted for approval. This document was provided to you as a result of a request received by SEBA from you and/or persons entitled to make the request on your behalf. Should you have received the document erroneously, SEBA asks that you kindly destroy/delete it and inform SEBA immediately. This document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in Singapore where such distribution, publication, availability or use would be contrary to law or regulation or would subject SEBA to any registration or licensing requirement within such jurisdiction. This document is under no circumstances directed to, or intended for distribution, publication to or use by, persons who are not accredited investors, expert investors or institutional investors as defined in section 4A of the Securities and Futures Act (Cap. 289 of Singapore) (“SFA”). UK: This document has been prepared by SEBA Bank AG (“SEBA”) in Switzerland. SEBA is a Swiss bank and securities dealer with its head office and legal domicile in Switzerland. It is authorized and regulated by the Swiss Financial Market Supervisory Authority (FINMA). This document is for your information only and is not intended as an offer, or a solicitation of an offer, to buy or sell any investment or other specific product.
SEBA is not an authorised person for purposes of the Financial Services and Markets Act (FSMA), and accordingly, any information if deemed a financial promotion is provided only to persons in the UK reasonably believed to be of a kind to whom promotions may be communicated by an unauthorised person pursuant to an exemption under the FSMA (Financial Promotion) Order 2005 (the “FPO”). Such persons include: (a) persons having professional experience in matters relating to investments (“Investment Professionals”) and (b) high net worth bodies corporate, partnerships, unincorporated associations, trusts, etc. falling within Article 49 of the FPO (“High Net Worth Businesses”). High Net Worth Businesses include: (i) a corporation which has called-up share capital or net assets of at least £5 million or is a member of a group in which includes a company with called-up share capital or net assets of at least £5 million (but where the corporation has more than 20 shareholders or it is a subsidiary of a company with more than 20 shareholders, the £5 million share capital / net assets requirement is reduced to £500,000); (ii) a partnership or unincorporated association with net assets of at least £5 million and (iii) a trustee of a trust which has had gross assets (i.e. total assets held before deduction of any liabilities) of at least £10 million at any time within the year preceding the promotion. Any financial promotion information is available only to such persons, and persons of any other description in the UK may not rely on the information in it. Most of the protections provided by the UK regulatory system, and compensation under the UK Financial Services Compensation Scheme, will not be available.
© SEBA / Kolinplatz 15, 6300 Zug, Switzerland
Join us as we