Skillsfirst Level 5 Diploma in Financial Trading (RQF) - Module 1 - Trading Introduction
Skillsfirst Level 5 Diploma in Financial Trading (RQF) - Module 2 - Financial Products
Skillsfirst Level 5 Diploma in Financial Trading (RQF) - Module 3 - Economic Principles
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Nodes are the computers that are used to run the cryptocurrency software. They are more powerful than your average PC as they need to run efficiently by processing and using the amount of information required to relay information. Anyone can run a node by downloading the software required for the coin, which are usually free, but as explained above they need a lot of energy to run and need larger than usual storage i.e. Bitcoin network currently takes up about 145GB. Nodes send information and transactions around the network, which generally happens on a small number of nodes it is familiar with, and that node relays the information to nodes that they know and so on. Eventually the information spreads across the network pretty efficiently and quickly.

Nodes can be mining nodes and are often referred to as ‘miners’ and they group transactions into a block which are added to the blockchain. Miners, as part of the crypto coins protocol and program, must solve complex mathematical puzzles, which including the answer, are sent in the block. This puzzle then needs solving by finding a number. That number combined with the data in the block, passes through a hash function and produces a number within a certain range. Whilst this may sound easy it is not! For example the number is called a ‘nonce’ which is a concatenation of a number used once and in the case of Bitcoin that number is an integer between 0 and 4,294,967,296!

When solving the puzzle, miners in effect randomly guess the number and apply it to the hash function (the hash function makes it impossible to predict the output). There is no way of telling which number will work, as consecutive integers will produce very different results made harder by the fact that there may be more than several nonces that produce the result, or indeed none! Miners therefore must keep working on the number by using a different block configuration.

The first miner to solve the puzzle with the correct hash announces its success to the whole network and all other miners stop working on that block and move along to the next puzzle (block) to solve. The reward for finding a new coin and or solving the block is a percentage paid to the successful miner. It’s important to remember that various coins have different reward values, which is why miners prefer some over others or mine multiple coin types.

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