top of page
  • Writer's pictureNicky

What are nodes? What role do they play in the cryptocurrency ecosystem?


Cryptocurrency technology is based on a ledger system which processes and records every transaction that takes place on a specific chain, like Bitcoin or Ethereum. Each block created contains data about the transaction that has taken place and is time stamped and verified. Once the block is produced it is added to the previous chain and becomes permanently recorded and stored. Blockchain technology is permissionless, secure and immutable


Nodes are the mechanism which allows the blockchain to function.

A node is simply a computer or device that connects to a specific blockchain. The node processes the transactions on the network or chain and keeps a record of this data in each new block that is created. Nodes are the backbone of any blockchain network and without them, the blockchain would not be able to function.

Nodes are interconnected and decentralised which means that there is no one central authority controlling the network. The interconnectivity of the nodes means that the data held by one node is shared by all. Both these features: decentralisation and interconnectivity, ensure the security and immutability of the blockchain.


Each full node on a particular cryptocurrency network, holds a record of every transaction that has ever occurred on that chain. The nodes also see every new transaction that takes place. In order for new transactions to be added to the block chain, the majority of nodes must agree that the transaction is legitimate. If this is confirmed, then a new block is added to the chain and broadcast to all other nodes, so that they can add the block to their records. Each time a new block is added the block height of a chain increases.

Most nodes are online and record new blocks in real time. In fact, in order to earn rewards from a particular chain, it is essential that nodes are actively connected and able to process new blocks. Each time a node produces a block for the chain, it is rewarded by the blockchain it is servicing. This is how node operators are paid for their service in maintaining the blockchain for a particular cryptocurrency.

The health and integrity of a blockchain is safeguarded by the nodes and the node operators. It is a symbiotic relationship between the node operators and the blockchain. If the blockchain fails, the node operators lose their rewards and income, so it is in their best interests to maintain the integrity and security of the chain.


Nodes on a network have the ability to communicate with each other, but still remain independent and as such incorruptible. It is essential that the nodes on a network communicate each new block and verify its authenticity in order to prevent double spending. If a node sends false information, it is rejected by the other nodes and cut off from communicating further false data. This excommunication of malicious nodes protects the blockchain from corruption and hacking.


The more decentralised a chain is the more secure it is too. Therefore, it is important for the health of the blockchain to have has many nodes in as many different locations and under the control of as many different operators as possible. Too many nodes operated by the same entity could threaten the security and integrity of the blocks produced. Fortunately, the cost of owning a node for any particular chain is usually very expensive and this helps prevent one person owning too much of the network.


Nodes help the cryptocurrency network stay decentralised, secure and permissionless. They are the essential links that connect the chain and are integral in maintaining this trustless technology.

10 views0 comments


bottom of page