Troy Wong, CPA, CA
Jan 16, 2018 · 4 min read
A Dash Masternode visualized above.

As cryptocurrencies continue to gain steam and credibility as an investable asset class, the differing types of blockchains, technologies, and ecosystem stakeholders are gradually coming to light. Much the same way that an efficient capital markets system analyzes a company on its management team, operational efficiency, and capital structure, the cryptocurrency investment community is beginning to realize that not all blockchains are created equal. As one dives deeper into the blockchain token space, the structural and technical differences of various blockchains becomes increasingly clear — and the concept of masternodes is gaining increased attention.

How does a node compare to a miner on a blockchain?

In order to understand the concept of a masternode, one must first understand the basic building blocks of how nodes and miners work together. Nodes are the back-end servers that maintain a full copy of every blockchain transaction that ever existed, as well as broadcast transactions to (other nodes) on the blockchain network. Whenever you are using a wallet to send or receive a token, you are doing so through a node that is connected to each blockchain network. Nodes and miners work together as part of a blockchain ecosystem, nodes being the computers that act as servers on the network, and miners being the one’s that cryptographically seal each transaction into an immutable state. In order to operate a node, one must maintain specific hardware and software that is connected to the internet at all times so that the node is available to stay in-sync with the rest of the nodes on the network. It is in this manner that a blockchain ledger system can exist in a decentralised ecosystem globally.

Nodes and miners are friends — one needs the other to co-exist.

I understand what a node is. What is a Masternode?

The concept of a masternode in a mainstream blockchain currency was pioneered by Evan Duffield (the Founder and creator of Dash). Prior to this point, the successful implementation of masternodes within a blockchain ecosystem had never been implemented at scale. A masternode is a node on a blockchain network that also has a set amount of currency “staked” against it. In the case of Dash masternodes, exactly one thousand Dash is kept in a segregated account on the Dash blockchain that is linked to a Dash node. This concept of leaving specified amounts of currency on a blockchain in order to perform advanced functions on the network is known as “Proof-of-Stake.” This appropriately describes the effect of staking one’s currency on the Dash blockchain, similar to how old school gold miners would literally stake their claim on a prospective mine site. Masternodes are known as trusted actors within a blockchain ecosystem, because they have staked a material amount of tokens on the blockchain to validate their claim. As result of staking their tokens as assets, masternodes can facilitate advanced functions on a blockchain that normal nodes cannot. In the case of Dash, the masternodes are used to facilitate the following functions on the Dash blockchain:

  • Instantly sending transactions (known as Instasend).
  • Voting & governance functions.
  • Privately sending transactions (known as Privatesend).

Masternodes get paid by the Dash blockchain in the form of Dash tokens for providing their services. Exactly 45% of all Dash created is paid to Dash masternodes. Payouts occur approximately every seven to eight days, and is calculated by an algorithm that monitors each masternode’s staked currency and connection time. The current revenue generation of a single Dash masternode is approximately eight to nine percent per year. The best part about Dash masternodes is that the Dash currency remains in complete control of the individual masternode holder, so that any price appreciation in the Dash token accrues to the Dash masternode holder as well.

Dash Masternode Exposure through Neptune Dash Technologies Corp.

The cost of owning and operating a Dash masternode is escalating at a rapid rate. Setting up and maintaining a masternode can be quite technically challenging, requiring sophisticated server equipment, internet bandwidth, and software monitoring. The security aspect of storing millions of dollars of cryptocurrency cannot be understated as well. Given the high barriers to entry and lucrative returns associated with the construction, operation, security, and ownership of Dash masternodes we created Neptune Dash (TSX-V: DASH) as the perfect entry point for investors to gain investment exposure to a leading cryptocurrency.

Troy Wong, CPA, CA

Written by

Co-Founder & CFO @Neptune Dash