How does a Bitcoin Node Verify a Transaction?

If you are familiar with the blockchain of Bitcoin then you know that nodes are an important part verifying Bitcoin transactions. But how does this happen exactly? In order to understand how nodes work to help maintain the blockchain, we first need to understand exactly what a node is.

What is a Bitcoin Node?

Bitcoin is more than just a digital token that can be traded with others for things of value. It is technically a vast network that is powered by something called the blockchain. For Bitcoin and its blockchain to work properly, a large amount of computer hardware is required. Any computer that connects to the Bitcoin network is called a node.

A node can either be a partial node, or it can be a full node. A full node is one that helps to verify all of the transactions that are taking place on the blockchain. These full nodes work in tandem with one another to create what is called consensus. When a consensus about the authenticity of transactions on the Bitcoin network is reached, another block is added to the blockchain and the node full node that solved the block it is given a reward of Bitcoin for doing so.

It is not necessary for a machine to help verify transactions on the blockchain in order to be a node. All that is required is that the computer be connected to the Bitcoin network. This is done by downloading a copy of the Bitcoin Core from Github.  The Bitcoin Core is a software application that implements all of the full nodes that maintain the blockchain. This application can be downloaded by anyone, therefore technically making that person’s hardware a node. But only full nodes are engaged in the process of mining.

Mining is how transactions on the Bitcoin blockchain are verified. It is a complex operation that requires specialized computer equipment. It can also be a very expensive proposition. This is why Bitcoin mining today is carried out by large mining farms. It is also possible for individuals to participate in mining pools like the one offered by Genesis Mining. This pool allows individuals to purchase hash power and share the rewards of mining. The owner of the mining pool bears the cost of operating and maintaining equipment.

Bitcoin Nodes and Verifying Transactions

When a mining rig is hooked up to the Bitcoin network it becomes a full node. The node then monitors the network to see when groups of transactions have been added to a pool. It can then select transactions to verify. Multiple nodes may be attempting to verify the same transactions at any point in time.

The process of verifying begins by attempting to solve a complex mathematical equation. The node that succeeds in solving this equation then adds the results of their work to the Bitcoin network where other nodes must reach a consensus on the accuracy of the solve. Once this consensus is reached and the signature of the solving node is verified through an algorithm called Proof of Work, the block of transaction data is added to the blockchain and it becomes a permanent part of the record.

The Number of Bitcoin Nodes is Dropping

There was a time when mining was performed by a large number of individuals. Many of these were single individuals who simply used a laptop or desktop to complete the work. Recent statistics indicate that the number of full nodes on the Bitcoin network is dropping by a large amount. It has also been observed that the number of functioning nodes decreases at certain hours of the day. This would seem to indicate that there are still some solo miners who use basic equipment which is disconnected at night.

It has also been generally true since 2014 that the majority of full nodes were located in North America. This, too, appears to be changing. Now there are more mining farms located in all parts of the world. Canada remains a stronghold of Bitcoin nodes, but more nodes are appearing on the European continent.

Another reason why some people have lost interest in being a Bitcoin full node is that the rewards aren’t what they used to be. There was a time when the reward obtained by a full node engaged in mining averaged more than 15 Bitcoin each day. But as the number of Bitcoin increases, so does the difficulty of the mathematical equations that must be solved to earn the reward. The cost of mining has simply exceeded the potential return in many cases, putting individuals at risk of spending more to mine than they can earn in rewards.

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