What are masternodes?

by Andy Mora

What is a masternode?

Masternode is a full node (and full node is simply as a computer in a network that has a complete, current copy of the blockchain ledger) or computer wallet that keeps the full copy of the blockchain and updates it in real-time, in short, both nodes and masternodes need to be always online and running. Masternode is very often abbreviated with MN. Masternodes are usually part of Proof-of-Stake (PoS) based cryptocurrencies.
We may say that masternodes are upgraded version of standard full node because they perform some other functions apart from just keeping the full blockchain and relaying blocks and transactions as a standard full node does.
Some of the advanced functions that masternodes can perform are:

  • Masternode can process instant/direct send transactions
  • Masternode can increase the privacy of transactions
  • With Masternode it’s possible to participate in governance and voting
  • Masternodes enable features like and treasury or advanced budgeting systems in cryptos

The full scope of masternode features may vary from cryptocurrency to cryptocurrency depending on how masternodes have been implemented.
What do I need to run a masternode?

Masternodes can be run by anyone. However, they are not free. There is an entry fee needed, collateral of sort put in place to ensure that the system won’t be exposed to bad actors – so they don’t cheat or corrupt the system. The entry fee is not constant and depends solely on the type of the coin a masternode is used for. This entry collateral fee is used as insurance – the risk of cheating the system is lower where the masternode operator has something at stake here. Hypothetically, if masternode operator chooses to express malicious intention towards network he will be punished in the form of decline in the value of his/her own coins used as MN collateral.

How we I can profit from masternodes?

Running your own masternodes can be profitable business and can be treated as a valid crypto investment. Every MN owner is getting a slight cut in the profit of the network. So having a MN is just like earning a monthly or weekly interest on your crypto holdings, a source of passive income so to speak. Each cryptocurrency has different masternode reward ratios models through which an MN operator can earn stable passive income.
What are the requirements of hosting my own masternode?

Usually, you will need the meet the following requirements to set up a masternode:

  • Collateral - minimum amount of coins of particular cryptocurrency of your choice. This number varies from crypto to crypto. For example, if you want to own a DASH masternode you will have to pay over 60,000 Euro in DASH as collateral.
  • A dedicated, stable IP address
  • A Virtual Private Server or standard server to host a MN wallet for 24/7
  • Some storage space to save the blockchain (depending on the cryptocurrency)

Above mentioned requirements are pretty much the same for every masternode based cryptocurrency.

Happy staking!

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