, 3 years ago

What is a Masternode?

Masternodes are often famed for the opportunity to gain passive income. But why are operators rewarded and what is a masternode in the first place? With this article we are going to introduce you to the concept.

Nodes and their tasks

Let’s take a quick look at the Bitcoin network. Here, a node verifies, stores and distributes Bitcoin transactions across the network. This adds a lot of security, because each node decentralizes the network and makes it more resilient. Together with the miners the node operators ensure that no single entity can control the network.

Masternodes are doing more

The downside of the Bitcoin network is that a node operator gains no profit from running such a node. At the same time, he has costs, namely the computer or VPS that is needed along with the costs of electricity and bandwidth.

This is where the concept of masternodes step in. They are basically doing the same thing as other full nodes, but in return they get a share of the block rewards like the miners. A masternode might perform additional tasks like:

  • Instant transactions
  • Adding privacy to transactions
  • They have the right to vote
  • Additional monitoring and security of the network

While the Bitcoin network only incentives miners, other cryptocurrencies chose to reward node operators as well. But running a masternode isn’t for free as well as mining comes with some costs.

Masternodes require collateral

If anybody could run a masternode, then a malicious actor could try to disturb the network. Therefore, each node operator needs to have skin in the game. The basic idea is that once a node operator is invested he has more reason to support the network instead of harming it.

Such an investment is usually worth a lot of money. Crypto like Dash require 1000 DASH to run a masternode which is roughly $74.000 at the time of writing. But there are also other crypto which will require a lot less, since they are not expensive as Dash is.

Aside from a reasonable amount of money an operator will need a VPS to host the masternode. A home computer could do the trick as well, but comes with a lot of issues that a VPS service won’t face in the first place. The third option is to book a masternode hosting service. There are plenty offers available that will take the burden of maintaining VPS for a small service fee.

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