What is masternode?
The nodes in a blockchain are basically the network that makes the blockchain exist. Without nodes, there would be no blockchain. However, there are different types of nodes, such as Masternodes. This is a technique that not all blockchains use. In this article, we'll explain to you what Masternodes are.
How a cryptocurrency
works are very dependent on the consensus algorithm that is used. The blockchain that uses Proof of Work (PoW
), work with miners. Blockchain with Proof of Stake (PoS
), on the other hand, use a Masternode system. There are a few exceptions to this rule, but for the most part, this is the way it is done now.
The term Masternode comes from English and literally means "Master Node." The term "node" refers to a machine that is part of a network and is one of the pillars of the network through which communication flows. Thus, master nodes can be considered as a special category of nodes, which are more important than the normal nodes.
A comparison can be made between a team leader and the employees directly under him. The team leader is responsible for completing a project by asking his employees to perform certain tasks. He will then present the results to his employer.
This is how it works with Masternodes too. The normal nodes carry out their work, while the Masternodes check that the work is carried out correctly. The Masternode in this case is the team leader, while the normal nodes are the employees. In this way, the network knows for sure that everything is done in the right way.
How does Masternode work?
As we saw earlier, cryptocurrencies that work with the PoS algorithm need Masternodes to function properly.
From a technical standpoint, a Masternode is a complete node that has a full copy of the blockchain
. It executes, validates and transmits transactions on the network. Lower-level nodes have only a partial copy of the blockchain and take turns verifying transactions, according to a random selection system.
The main importance of setting up a Masternode is the fact that this structure allows you to make money. All you have to do is block a certain number of tokens of the cryptocurrency in question after which you can get started.
People will run their transactions through the Masternode and it is this Masternode that will validate these transactions. The Masternode will then earn a reward, which will be shared with the other nodes that contributed to the validation of the transactions.
By doing this, the Masternode will automatically earn crypto coins without any effort other than the initial effort to set up the system. Moreover, if the cryptocurrency is interesting, there is also money to be made from the price increase of the token over time.
However, setting up a Masternode is not accessible to everyone. You need to have a minimum number of tokens/coins to be able to do this. This means that you will have to invest a lot of money if the project is popular. Moreover, you need to have enough hardware, a good quality internet connection and a lot of time. After all, a Masternode needs to be available at all times.
Moreover, some cryptocurrencies, such as TOMO, use a voting system to choose up to 150 Masternodes operating simultaneously. You just have to be one of the lucky ones.
How to create a Masternode?
In order to run a Masternode, a minimum amount of the relevant cryptocurrency must be held. This is a prerequisite for most cryptocurrencies, as developers want to ensure that this structure will be efficient and managed by a responsible person. By only allowing people who have invested a lot of money in the project, the non-serious people are excluded.
Here are the (possible) steps required to set up a Masternode:
- First, you need to buy the required number of tokens or coins on an exchange.
- Then you need to install the corresponding wallet on your PC and synchronize it with the blockchain and send your crypto coins to this wallet.
- Create a node address in your wallet and transfer the tokens/coins to this address.
- Set up your node by choosing to host it on a server in a hosting centre. You can also host your node at home or the office, but then your computer must
- always be on for it to work. Hosting on a server at a specialist is therefore much more convenient.
- Once all this is done, you now need to synchronize the server with the blockchain.
- Finally, configure your Masternode in your wallet and boot it up.
- Next, you have a working Masternode
- For most MasterNodes, you can turn off the computer that your PC wallet is on, this will not affect the operation. The only computer that needs to be turned on is the computer with the node.
How much money can you make with Masternodes?
It's hard to accurately estimate how much money you can make with a Masternode because it depends on several factors:
- The cryptocurrency you want to invest in.
- The difficulty of setting up a Masternode for the cryptocurrency.
- The future change in the value of the cryptocurrency in question.
- The money required to qualify to set up such a system.
- The time you need to stake your assets to run your Masternode.
- The popularity of cryptocurrency. The more popular it is, the more stable it will be and the lower the percentage gains will be.
As you can see, it's pretty hard to predict what the ROI (return on investment) will be. For most people, it ends up being deceiving, given that there are often high costs associated with managing a Masternode as well. The website masternodes.pro provides more information on the potential profitability of some cryptocurrencies that allow such a system.
Why should you set up a Masternode?
Besides the money you can make, there are other benefits to setting up Masternodes that benefit the network as a whole:
- It increases the privacy of transactions.
- Transactions can be completed much faster.
- Users can participate in the governance of the cryptocurrency by voting on important decisions regarding the project.
All Masternodes have these 3 features. However, when it comes to performance, it depends heavily on the technology behind the specific cryptocurrency.
These cryptocurrencies use Masternodes
Not all cryptocurrencies use Masternodes. This is because it is a fairly specific system, which cannot be used within every blockchain. Here is a list of some cryptocurrencies that use such a system with Masternodes to function:
- Dash (DASH)
- Crown (CRW)
- Vcash (XVC)
- PIVX (PIVX)
- XtraBytes (XBY)