Investing in Crypto — Dash Masternodes
Significant payouts while powering the network.
What if there were a happy medium, where an investor could buy a coin that has a chance of increasing in value and — with almost no added risk and little effort — could earn a significant income stream, similar to a stock dividend?
Such a scenario exists, and it’s called a Dash Masternode. A Masternode is a server backed by collateral held in Dash, and they’re used to provide advanced services as well as governance on the blockchain. To own a Masternode, you need to purchase a set amount of DASH: in this case one thousand coins. Then, you set up a server. This is nowhere near as daunting as it sounds. Most Masternode owners just rent a Virtual Private Server, which is inexpensive and has excellent up-time. Once set up, the Masternode essentially runs itself. And Masternode owners are paid regularly for the services their server provides the network.
OKAY, BUT WHAT IS A MASTERNODE?
The concept of a Dash Masternode may be hard to process without more context. When Dash launched in 2014, blockchain authentication was handled by miners, but experts recognized that a set of relatively unforeseen problems would soon challenge all cryptocurrencies: delays in authentication, high transaction costs, and “blockchain bloat”.
Evan Duffield, Dash’s founder, realized that paying a group of nodes, called Masternodes, would solve these problems. Using quorum technology, Masternodes could verify transactions before going to the blockchain, allowing for instant confirmations. In a nutshell, this highly innovative approach completely solved all the above-mentioned problems, arguably making Dash the only cryptocurrency to date that has done so. Also, Masternodes allow for other valuable services.
What Technologies Do Masternodes Enable?
Dash’s blockchain management is divided between miners and Masternodes. In a nutshell, the miners provide basic authentication and blockchain security, while the Masternodes vastly improve performance and offer sophisticated services. Perhaps Dash’s best-known Masternode feature is InstantSend, which lets transactions happen in under two seconds. This speed allows point-of-purchase use and is far faster than Bitcoin, which needs at least 10 minutes to complete — sometimes hours and sometimes days (InstantSend is even faster than using a VISA card!).
Masternodes also allow DASH to charge minuscule transaction fees. A typical Bitcoin transaction costs from $20 to over $50, while credit cards charge merchants 1.5% to over 3.5% of the purchase cost. DASH, on the other hand, only charges a fraction of a penny per transaction. In the future, the network will earn fees from users of Dash Platform. Whether you use Dash to buy a mansion or a stick of gum, the transaction cost is the same.
Blockchain bloat is only a problem on “voluntary” nodes; DASH Masternodes must meet certain requirements or risk falling off the network and losing out on payments. But Masternodes do much more than solve the above-mentioned problems. They make the DASH network invulnerable to “51% attacks” and enable other features like CoinJoin, chain-locking, and User Accounts. DASH is the only major or top-10 mined coin to offer Masternodes and is also the fastest, cheapest to use and probably the most secure.
How Much Does a Dash Masternode Pay?
Currently, Dash Masternodes earn a little over 6% ROI per annum Dash for Dash. Payment comes from blockchain rewards: 45% goes to Masternode owners, 45% goes to miners, and 10% goes to the network’s budget. Payments vary with the number of Masternodes running at any one time. Community-created websites offer all kinds of information on Masternodes and are found at the dash.org website.
Because Dash lowers rewards by 7% a year, similar to Bitcoin’s halving every 4 years, the amount Masternode owners are paid from produced coins will slowly decrease over the coming years. As Dash adoption and use increases, Dash Platform fees should make up the difference. While transaction fees will remain minimal to the consumer, Dash Platform fees will be generated when businesses build their applications on the network’s second layer. Already many projects are being built on the Dash testnet. Fees are expected to increase with adoption and will offset part of the reward-based decreases that happen each year. It’s projected that at some point fee structures will stabilize reward fluctuation, but it is unknown at this time when or if this will occur. Even with reward decrease, Masternodes should remain above 5% ROI for some time.
Possible Masternode Benefits
Most cryptocurrency prices fluctuate, sometimes a lot. Owning a Dash Masternode doesn’t change this, but it may help dampen a loss because the earned coins would offset some of the loss if you were ever forced to sell your coins for a low price. In a more upbeat scenario, where you sell for a gain, the added coins make the profit even larger. In this way, owning a Dash Masternode might make a good thing even better. Long term, a Masternode will generate a substantial number of added coins, much like a stock that pays dividends.
Why Must I Own 1000 DASH Coins To Own A Masternode?
The collateral requirement is to prevent Sybil attacks (as is the tiny fee charged per transaction) and to promote involvement with the project. If more than 10,000 Masternodes exist, the network slows down, so a relatively high collateral requirement keeps the number of Masternodes at about the right level. At the time of this writing, there are just under 5000 Masternodes, which is roughly the optimal amount.
How Do I Set Up a Dash Masternode?
When you’re ready and after buying 1000 DASH coins, purchase a VPS from one of the many providers, such as Amazon, Microsoft, or many other companies. You then go to the Dash Wiki and follow the directions on how to create a masternode server.
A great option is to visit Dash’s testnet and learn how to set up a Masternode with no risk, using test-Dash. To do this, join the Dash discord and ask how to join the developer Discord in the testnet thread. People there are friendly and willing to help (sometimes they need time to answer), but please, never give anyone access to your computer or wallets. Also, always use a hardware wallet for large sums of crypto such as a Trezor).
Is It Time-Consuming To Run The Server?
Once set up, a DASH Masternode tends to run itself, except that, occasionally, you must update your server. This varies. Sometimes, updates come once a year Other times, maybe four times in a year. The basic rule of thumb is that if you can set up the server, you can update it. It requires very little time and effort.
There are services that will set up and maintain your Masternode for you, for a fee. This can be done while allowing you to hold the keys to your collateral coins. But if you don’t hold a full 1000 coins, you would have to pool with others, and although such services exist, be aware you will have to entrust your coins to a third party, and the old slogan “not your keys, not your coins” comes to mind. However there are services with good reputations out there, but do your own research and other options we’ll discuss below.
Like owning a stock, Masternode ownership gives you voting rights. Once a month you can, and should, vote on important proposals that are brought before Masternode owners. More about this can be learned in the Dash Discord server.
Can I Participate in a Masternode Without Buying 1000 DASH?
Yes. You may reach an agreement with a publicly accessible service that allows people to “pool” coins with others to fund a Dash Masternode. You won’t have the security of owning a Dash Masternode all by yourself because you’ll have to deposit your DASH coins with a service. This means you’ll have to trust them to manage the server, keep the coins secure and distribute funds equitably. If they disappear with your coins (or if your coins are hacked or stolen), the coins are gone. While some of these services are undoubtedly trustworthy, we have no way of estimating their trustworthiness or just how much added risk they entail.
Another way to form a pool is to get others to trust you with their DASH, and you manage the Masternode. This can be possible with a close-knit group of family and/or friends who trust each other. This is much safer for you because you retain possession of your DASH. However, you become responsible for managing the server, making equitable and timely payouts, and not losing the coins that you have been entrusted with (if you lose their coin, you may be held responsible). Still, this may be the best option for pooling, if you are lucky enough know people willing to participate. But again, there are respected services available for a fee (usually 10–15% of the reward), and we do hope a trustless solution for pooled Masternodes will be available in the near future.
Exercise Due Caution
No part of this article should be construed as a recommendation to buy DASH or a Dash Masternode. All cryptocurrency investments involve substantial risk and could result in a partial or complete loss of funds. Before investing in DASH, a Dash Masternode or any cryptocurrency, research them thoroughly. Consult with a qualified cryptocurrency expert and be absolutely certain such an investment is right for you.
