Crypto 101: What is a masternode?

Cezar Renta

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The crypto ecosystem allows for endless ways to earn money. You don’t have to be a seasoned market analyst investing a small fortune to up your income.

One of the ways to make money with cryptocurrencies is by running a masternode. Obviously, the first question that comes to mind is what is a masternode and how does it work.

What is a masternode?

A masternode is a cryptocurrency full node or a computer wallet that retains a full copy of the blockchain in real-time.

Let’s detail this a bit. Blockchain technology uses three main types of nodes: the regular node (simply called node), the full node, and the masternode.

  • Regular nodes are the basis of a cryptocurrency and their role is to secure the blockchain and prevent double spending. They are rewarded via network consensus and through their contribution to block creation. In the Proof-of-Work algorithm the nodes are miners and in Proof-of-Stake, the nodes are staking wallets.
  • Full nodes contain a real-time full copy of the blockchain (regular nodes do not). Full nodes are also able to connect to over 124 other nodes. In comparison, a regular node can only connect to 8.
  • Masternodes are full nodes but with additional capabilities. They are designed to perform various types of services such as private send, instant send, participating in voting and governance, and storage of the entire blockchain. They receive rewards for these services and they are full nodes in both Proof-of-Work and Proof-of-Stake algorithms.

Masternodes are servers on a decentralized network always communicating with other masternodes and completing exclusive functions. While they can differ between different blockchains, the way they work is largely similar.

How can you run a masternode?

Anyone can run a masternode, but there is an entry barrier to prevent system corruption. In other words, the entry barrier is needed to make sure the masternode owner doesn’t attempt to cheat or corrupt the system.

The entry barrier requires the masternode owner to provide certain units of that cryptocurrency as collateral. This way, they are less tempted to cheat as the masternode operators have a stake in running the system and they would have their own coins devaluated should they attempt to corrupt the system.

Keep in mind masternodes require large amounts of collateral. For example, a DASH masternode requires a collateral of 1000 DASH which is currently almost $180,000. Besides owning the actual coins you will also need:

  • A dedicated IP address
  • A dedicated server or VPS
  • Storage space for storing the blockchain
  • 24/7 uptime

This takes us to the next question. How would running a masternode benefit you as an investor?

Masternodes and crypto investors

Masternode operators will receive larger sections of block rewards compared to regular nodes thanks to their additional responsibilities and capabilities.

Running masternodes allow investors to have guaranteed coin earnings which you can sell for profit or saved to purchase another masternode and so on.

Investing in a cryptocurrency just because it allows you to run a masternode is certainly an option. However, if you already own a certain cryptocurrency supporting masternodes, it’s certainly worth exploring them as they can provide smart passive income based on something you already own.

If you plan to select a currency to invest in simply for running a master node you need to make your decision by calculating your ROI.

Right now, there are hundreds of cryptocurrencies allowing masternodes to be run. You can check them out at masternodes.online. However, many of them offer weak incentives so you should definitely read up on them before choosing one.