PART 1 — A BIT ABOUT MASTERNODES
Since their inception, masternodes have gained lots of traction throughout the cryptocurrency space, as today we see more and more coins incorporating this technology into their blockchains.
When DASH first innovated their system of masternodes, it served as a landmark implementation of what can only be described a “breakthrough” in cryptocurrency and privacy technology alike.
Firstly, in order to understand the magnitude of the excitement among cryptocurrency enthusiasts — we need to take a look at what a “masternode” actually is.
In the cryptocurrency space, you may have heard the term “node” floating around. A node, explained in layman’s terms, is a computer that is usually always on and connected to the internet, with the purpose of keeping its own copy of a particular blockchain. The node then communicates with other nodes on the network, known as “peers”, who then exchange data back and forward between one another in order to maintain the same copy of the blockchain.
Nodes are important, because they are conducive to decentralization — which, as you know, is something which is very important among the cryptocurrency community. Nodes create decentralization by having hundreds or even thousands of computers (nodes) online at the same time, all keeping records of a particular blockchain — like lots of databases scattered throughout the world, all updating in real-time with one-another.
This means that a particular decentralized network operating on a system of nodes, i.e. The Freedom Coin network, would be a lot harder to hack, manipulate or attack than a network with a centralized database, like Facebook’s for instance. Take a look at the recent userbase data leak, for an example of the dangers of a centralized network.
For now, let’s forget about normal nodes and focus on masternodes.
Masternodes have the same features as normal nodes, meaning they also keep their own copies of the blockchain and communicate with peers on the network — however, where masternodes get exciting is the privileges and benefits they afford to owners, which normal nodes do not.
In order to be considered a masternode, the node needs to have a certain amount of coins locked up in an unspent output on it — known as “collateral”. Once the collateral is locked up and the node is configured correctly, it becomes a “masternode” and can now begin participating in governance on the network — governance and voting will be explained a bit later. In some cases, masternodes will perform certain functions on the network such as allowing instant and private transactions between users on the network.
For their efforts in the form of securing the network, masternodes are also like miners in that they earn a percentage of the block reward, in Freedom Coin’s case, masternodes are afforded 50% of the block reward, while the other 50% goes users staking their coins in their wallets.
As a result of masternodes being required to hold a collateral amount, they are economically incentivized to act in the best interests of the network. Why? Because anybody with a significant amount of money invested into a project, will not try and hurt that chain — it will usually end up costing them more money than it benefits them.
Take the example of Bitcoin miners — miners have paid a lot of money for their equipment (consider this their collateral) and they then use that equipment to mine Bitcoin. Should they do anything to hurt the Bitcoin chain, it may affect the price of Bitcoin and in turn will affect their profitability as Bitcoin miners.
It is the same principle with masternodes — as a result of the masternode holder being required to lock up a certain amount of coins, he or she will not be economically incentivized to hurt the chain, and in fact by virtue of that person running a masternode, they are adding security to the network and are thus paid a portion of the block rewards for their efforts.
Since we are making the comparison between Bitcoin miners (or any miners for that matter) and masternodes, let us consider how masternodes participate in governance and voting on the network. On Proof-of-Work networks (such as Bitcoin or Litecoin), governance is done in a democratic way and shown through “hashpower” (computing power). Whomever gets the most computing power on their “side”, becomes the majority chain through consensus.
In a very similar way to miners voting with their hashpower, masternode holders on Proof-of-Stake chains vote with their masternodes. This is known as governance and is one of the main reasons coins have chosen to deploy masternodes on their network — they make governance transparent and easy, a complete contrast from most Proof-of-Work chains (where we often see hard-forks and chain splits).
At this point, it would be good to do a quick summary of what we have covered about masternodes:
· Masternodes keep their own copy of the blockchain (like normal nodes) but also perform special functions on the network
· For their efforts in securing the network, masternodes are paid a portion of the block reward (much like miners on Proof-of-Work blockchains)
· Masternodes are afforded benefits such as voting on governance proposals and this makes allows the network to reach consensus much easier than Proof-of-Work blockchains.
PART 2 — MASTERNODES ON THE FREEDOM COIN BLOCKCHAIN
As mentioned above, masternodes help to decentralize a network. They also perform certain functions such as privacy and instant transactions and for their efforts in securing the network and locking up collateral, they are afforded voting rights on the network.
On the Freedom Coin blockchain, voting will be a system that we will use frequently. In order to get consensus from the community in terms of which development projects and investments to pursue, we will make use of our system of masternodes and allow for the eco-system to be self-governing through this technology.
To give a practical example of how voting will be used on our blockchain, lets imagine a situation where the community has brought to our attention a project or cryptocurrency that is worth investing into. We can then issue a proposal on our network and have our masternode holders vote in favor of the decision they choose.
This will result in us taking every decision only after the consensus of the network. This is true decentralization — where one entity does not have total control or authority over a network, but rather allows that network to come to consensus through democratic governance.
We also mentioned above that masternodes, for their efforts on the network, are paid a percentage of the block reward. This is standard on every network of masternodes, as it gives owners incentives to run their nodes.
However, Freedom Coin is adding further innovation to its system of masternodes, in that masternodes purchased in the pre-sale will receive block rewards paid out in TFC and will additionally receive a network service fee, paid out in Bitcoin. This will flow from the profits of the trading desk and will serve as an additional incentive to run a masternode, as their will now be two revenue streams to holders instead of one.
In a future article, we will take a closer look at the specific technical details surrounding a TFC masternode — how they operate, what their rights and roles on the network are, and also how their earnings are calculated.
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