Masternodes: The Next Step in Blockchain Evolution

At first glance it could seem like the blockchain is fuelled by breathless online hyperbole. It’s a revolution that is going to change everything they say. A new dawn for business, for government, for society…

To be fair, blockchain is an approach with a lot of potential. Broadly speaking, the blockchain, as the name suggests, is a chain of interconnected blocks of information, where the information in each block is independently validated against the block before, link upon link upon link.

As the blockchain has grown however, a problem has become acutely apparent: high-level processing capacity needs to be constantly available to ensure the validity of the information on the chain. If the information on the chain can’t be validated, then the value of the chain is significantly degraded.

The structure of the blockchain has relied on hundreds of individual processing nodes which mine and validate the information that is contained on the blockchain. The problem is that these individual nodes are not consistently available, vulnerable to a 51% attack, offer little else apart from validation and consume large amounts of processing capacity and power.

Masternodes offer consistent validation

This problem has led to the creation Masternodes, which offer consistent availability with no loss of security.

Without going too far into the technical details, Masternodes are tier-two bonded validators that provide network services and verify blockchain transactions. More simply, they can be viewed as the next generation of mining, improving upon the proof of work (PoW) consensus mechanism used by Bitcoin.

Masternodes offer consistent passive income

They are also a yield generating crypto-asset that can produce passive income for their owners. In return for validating blockchain information, Masternodes receive a proportion of any fee in much the same way as current individual nodes are paid for PoW activity. Masternodes use a staking method similar to proof of stake (PoS) to verify transactions, perform functions for the network and provide comparable levels of security. They also do not require powerful computers or consume large amounts of power, making them considerably more cost-effective and eco-friendly than individual nodes.

Masternodes run on virtual private servers (VPS) and require the masternode owner to stake a deposit in the network’s native currency. This collateral guards against attacks since the owner is disincentivized to risk their collateralized stake.

Once set-up, a masternode can produce income a reliable, consistent return. The exact regularity of the rewards and their value differs between networks, but variable yields in the 5–200% per annum range are thought to be realistic.

…making them an effective financial asset

And it is this aspect that is making some in the financial markets start to examine them more closely. When Fidelity entered the crypto space last year, Masternodes were their entry point. The markets are constantly on the look-out for ways of spreading their risks, and Masternodes could fit the bill for a variety of portfolios.

The technology underpinning blockchain is maturing rapidly. While there is undoubtedly still a fair amount of hype in the air, it’s there because of the potential: the blockchain could well support a variety of novel and cost-effective ways for businesses, governments and societies to conduct their affairs. It is also a very interesting opportunity for investors to support the sector as it grows. A lot of the hyperbole is breathless, but some of it is justified.

INDX is making it simple to invest in the masternode sector. We want to ensure that everyone can benefit from the digital economy by reducing uncertainty, risk, energy consumption and wasted time. To learn more about INDX, go to https://www.indx.capital/