What is Masternode?
“A computer that processes transactions on the blockchain, which is then rewarded with coins from the blocks created.”
In blockchain technology, there are three commonly-known types of nodes: the ordinary node, the full node, and the masternode.
The difference between a masternode and a node are their responsibilities.
If the blockchain were a factory:
Ordinary nodes are the factory workers. Ordinary nodes (simply called, nodes) are the foundation of a cryptocurrency, and their purposes are to prevent double spending and to secure the blockchain. Nodes are rewarded by contributing to block creation and network consensus. In PoW, nodes are miners and in PoS, nodes are staking wallets.
Full nodes are the factory foremen. Full nodes contain the entire copy of the blockchain in real-time, whereas an ordinary node does not contain any such copy. Full nodes can also connect to over 124 other nodes while an ordinary node can only connect to 8.
Masternodes are the factory managers. Masternodes are full nodes with extra capabilities — they perform different types of services, such as Instant Send, Private Send, and storage of the full blockchain, for which they receive block rewards. Masternodes are full nodes in both PoW and PoS.
A masternode is a server on a decentralized network which is utilized to complete unique functions in ways ordinary nodes cannot.
For more information on nodes.
Why own a masternode?
It is extremely useful to have many servers holding a full copy of the blockchain working for the native coin. Apart from directly contributing to the coin’s ecosystem and security, masternode operators will be awarded with larger portions of block rewards as compared to normal nodes due to their increased capabilities and responsibilities. The masternode system provides its native coin an advantage over volunteer-run blockchains, with its thousands of distributed servers working 24x7.
Aside from capital appreciation, masternodes provide an opportunity for investors to benefit from guaranteed coin earnings, in other words– dividends. These dividends can either be sold on exchanges for profit, or saved to purchase another masternode which subsequently produces more dividends — and the cycle repeats.
In short, owning a masternode “puts your crypto to work” and opens an opportunity to grow your passive income exponentially.
Overview of the Masternode market
- Total number of coins : 362
- Total market capitalization :+$3 billion dollars
- Median ROI : 24%
(Among top 10 Masternode coins by market cap as of 30th June 2018)
- Fast reward frequency : 90 min
(Among 200,000 active masternodes)
Masternode is undoubtedly a new and viable means of generating passive income.
Despite all the benefits of masternode ownership, operating a masternode is extremely resource-intensive (in terms of technical knowledge, capital, and time).
Barriers to owning a Masternode
Masternodes require large amounts of collateral in the form of its native coin. Committing a sizeable amount of collateral ensures that masternode operators have a significant stake in the project and thus, reduce the likelihood of them having malicious intent.
A DASH masternode requires a collateral of a 1000 DASH– worth approximately $242,000 at this time of writing.
Setting up a masternode is technically complex for the untrained user. In addition to high collateral requirements, a masternode needs:
- A dedicated server
- A dedicated IP address
- 24/7 uptime
- Constant monitoring for software updates
How to set up a masternode:
Free for everyone. Monitor all of your masternodes. See when they were paid, current balance, detailed transactions…dashmasternode.org
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References & Further readings on Masternodes