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What are Masternodes? How to Invest



Unsure what a masternode is or how you can benefit from one? Read this guide to find out.


What is Blockchain?

A blockchain is made up of tons of computers from all over the world. What’s special about how blockchains work is that every single one of those computers has the same records from a shared database. So, everything that’s ever happened on that database is in what is known as blocks. These blocks store the records, and this shared database is what we call the blockchain.

How to Create Your Own Blockchain


If you want to add a new block to the blockchain, you need to convince every single computer on the network that you’ve got a valid transaction. You can’t edit previous data; you can only add to the blockchain, and that’s called being “immutable” and “append-only.” It’s what makes a blockchain a blockchain, so, personal immutable shared data is pretty rare and special.

Consensus is the process of getting every computer and node to agree on what can be added to the end of the blockchain. What method of consensus those nodes use is dependent on the coin they’re helping to secure or, in other words, the nodes are what make the blockchain able to process, so that transactions stay secure from attackers.

The more nodes there are, the harder it is to disrupt the network because of node loss or 51% attacks. A 51% attack is when one node or group of nodes controls over half the network, which lets them dictate what gets added to the blockchain and makes the network centralized, defeating the purpose of a decentralized currency.

To summarize, nodes are a bunch of computers that make the blockchain work and stay secure through a process called “consensus.”

What method or algorithm of consensus is used depends on the coin. For example, Bitcoin uses a technique known as proof-of-work, otherwise known as mining (proof-of-work = mining).

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The Cost of Mining


Effectively mining Bitcoin these days requires specialized computers that cost a lot of money, and if you want to maximize profits, you need a lot of them. You need to get cheap electricity and a lot of it. In fact, mining uses so much power that people started getting concerned about the environmental impact of cryptocurrencies. Bitcoin mining alone used more electricity than 159 different countries. That’s thirty times more than all Tesla cars combined.

Some people do argue, however, that it’s not a waste, because mining turns power resource power into monetary value.

Some people saw this massive amount of electricity use that crypto mining incurs, and thought there should be an alternative consensus algorithm to proof-of-work. This is how proof-of-stake, or staking, came to be a thing. All you need to know with staking is that the more coins you have, the better staking rewards you get.

Think of it as a savings account. The coin’s team determines the average staking reward percentage, sort of like the interest percentage. You get paid at the bank, and in turn, you get rewarded for not touching your money. The more you lock up, or stake, the more you hypothetically get paid.

Proof-of-stake is cool because of coins like NEO. I’m getting paid several hundred dollars worth in dividends every month for literally doing nothing with the money except keeping it locked away. Even when the market is down, I’m still making money because of dividend-yielding proof-of-stake coins. So when it comes to mining versus staking, I’m not necessarily in favor of one method of consensus over the other.

There are, however, significant, mostly hypothetical, drawbacks to both staking and mining. I believe the future will belong to coins that can marry both.

One way people criticize staking is that you could literally buy 51% of the supply and dominate the coin to your benefit. However, my rebuttal to that is that in order to acquire that much of a coin, you would need to erode the supply, which would shoot up price and demand to the roof. If people sense that a coin has become centralized, they will jump ship, and the price would crash.

So, this brings us to masternodes. They’re a trendy aspect of cryptocurrency right now.

Quite simply, masternodes require a huge, set amount of a coin, and can grant even better dividend rewards than typical rewards earned through mining or staking.

Most people think that masternodes are an extension of proof-of-stake coins exclusively, but that’s not quite true. There are coins out there that use mining to make use of masternodes. So these kinds of nodes aren’t exclusive to staking or mining alone.

With that being said, running a masternode is just like staking. In a sense, you generate passive income through a masternode only by having your coins in a wallet and not moving them.

You can make a passive income with a masternode just like you could with staking a cryptocurrency. However, the rewards will be much higher on average, especially since the release of the Dash. Many coins have released their own variant of the system. The overarching feature of masternodes appears to be the locking of a minimum amount of coins and performing or gaining the ability to do a particular task within the blockchain or ecosystem and receiving a reward.

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How Much Money Can You Earn with Masternodes?

Probably the most important thing is that your coin, and therefore the team behind it, needs to be in it for the long term. If the team, for example, stops working on the project five years down the road, you’re going to be hurting because your long-term investment is suddenly not worth as much.

The problem is that there’s no magic bullet here because no one can see the future. So that’s why you need to learn how to evaluate a team. Look into the leaders of the project. Have they had experience with this kind of project or sector before? What happened to their last project? The most important thing is to make sure you’re not in a pump and dump.

You also need to make sure the project you’re looking at has masternodes supported. Now, this is a double-edged sword because of several reasons. If a coin goes into an ICO advertising masternodes, that coin is going to get a lot of attention initially. If the project announces masternodes after it’s already started trading, that’s going to shoot up the prices, and people are going to clamor to scoop up enough of the coin to run the masternode. I’ve seen coins such as V Chain and Walton Chain increase in price massively because they revealed that they’d be adding masternodes. The secret here is finding coins that might or probably will be offering a masternode in the future. But that’s sort of akin to finding a needle in the haystack.

You also need to know how the coin facilitates the masternode. For example, masternodes for Walton Chain can receive decent rewards. If you actively mine a coin, you can use a masternode to secure a better mining yield than if you were mining without a masternode. Masternodes can give you benefits in different forms, and it all comes down to your money making you more money. The crypto rich get even richer.

To give an example, my Walton masternode currently earns me X amount at Y percentage. But if Walton’s price goes five times the current price of Z, I’m also going to make five times the X amount. That’s where things get interesting. Generally, I’ve seen masternode yield percentages decrease over time, but that can easily be mitigated with an increase in the price of the underlying coin.

How to Find Masternodes to Invest In


Masternodes are great, but the crux is finding out about a coin before it’s big and the masternodes are too expensive for most people. Honestly, there’s very little strategy here other than being always on the hunt for these gems.

The most famous is Dash coin. The term masternode originated within the blockchain industry by the startup Dash. In the Dash ecosystem, a masternode is a computer or a node that runs Dash wallets, adding in the decision tree of the dash blockchain consensus. The masternodes within Dash help lock transactions with instant send redistribute.

Within the Dash ecosystem, you needed to have a minimum of 1000 Dash to participate as a masternode when Dash announced masternodes in June of 2015. The going price per a thousand Dash was roughly three thousand dollars at the time. Today, buying a Dash masternode will cost approximately $620,000. The payoff is that the node yields at the current valuation of Dash, which is $47,000 per year in dividends. For some people, that’s enough to live off of and never have to work again.

The best way to find masternodes is by being very good at research and analysis. If you do your research, maybe soon you’ll have an excellent portfolio with masternodes.

This article was curated through CryptoCurrencyNews’ Contributor Program. If you would like to write for us, send us your submission!

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The Future of Masternodes | Predictions and History



The crypto world went abuzz in February 2015 when Dash, the project formerly known as Darkcoin, introduced InstantSend and PrivateSend. The utility of masternodes had become apparent to end users by way of the fastest means of transaction at the time, with an added measure of optional anonymity.

Many other masternode projects have surfaced and sank on the coat-tails of Dash’s popularity since that time, mostly in the form of near-clones that largely failed to contribute useful innovations to the space, with few exceptions. This has resulted in many of today’s newer enthusiasts and developers overlooking the significant potential of the masternodes model as a foundation for tech advancement towards real-world viability for DLT and decentralized services.

Here I will highlight the great utility of the model by providing examples of new and useful innovations currently functioning, followed by my own predictions of the future for this technology, and offer rebuttal to a now-common presumption about masternodes.

Services Recently Decentralized via Masternodes

The masternodes model persists in disrupting the limited answers to “what can be decentralized,” continually facilitating new services and innovations in the face of other models that simply cannot sufficiently accommodate, or which face a cascade of challenges. The possibilities for decentralization via masternodes continue to expand due in large part to the lower solution barrier and flexibility afforded to projects with established masternode networks. Two recent examples of innovation most-readily spring to mind:

DEX: Today, Blocknet’s XRouter technology uses masternodes as “blockchain routing” nodes, enabling a functioning and truly decentralized exchange. Block DX offers a higher degree of decentralization than many other so-called DEX platforms we’ve come to know; it operates without the requirement of any centrally controlled servers, facilitated by a masternode network. Blocknet continues to innovate new ways of harnessing masternodes and its existing RouterX technology, including XCloud, a DLT interoperability platform.

DAG Relay: Patent-pending tech called ZDAG, utilized by Syscoin, makes a particularly compelling utility case with its use of masternodes as a source of bonded validators collectively serving as a high-throughput DAG relay network with nodes sharing fat interconnectivity, providing scalable throughput to the tokens generated on its platform, reportedly rivaling the performance of VISA Network. This new approach appears to have solved various challenges still faced by conventional DAG networks including eliminating the necessity of centrally controlled “watcher” servers, native retention of full transaction history, and decentralized global consensus. Furthermore, every ZDAG transaction can roll to a PoW layer post-transfer (SHA256 merge mined in the case of Syscoin), further compounding the degree of statistical finality and double-spend protection well above that of a typical DAG. All of this, while residing at a “sweet spot” on the decentralization spectrum. ZDAG was initially released in May 2018 and recently underwent significant enhancements. It currently presents 10-second global consensus and redeemability, and other characteristics where the majority of scaling layer solutions continue to fall short and/or lack objective proof of claims. According to Whiteblock, the group who performed third-party scientific tests of the platform, TPS of 15k-60k was observed within realistic network latency across 24 cloud nodes simulating a live network environment in the closest similitude feasibly possible at the time. The Syscoin developers claim its efficient topology relay algorithms ensure this comparatively high throughput is retained across a much more populated network, and further state they plan to subject the layer to scaled-up tests in the future, which will likely incorporate significantly higher node count. ZDAG uses roughly 1,600 masternodes on the present Syscoin mainnet.

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How Will Masternodes Look in the Future, and What Roles Will They Fill? My Predictions:

  • Masternodes will become recognized as the means to facilitate proper networks for a growing range of decentralized services, and open new gateways towards scaling. The model continues to support a broadening range of services in capacities where other models fall short, and can potentially provide both horizontal (number of nodes) and vertical (resources per node) scaling. The scalability factor could be driven further through new approaches to incentivization, which brings me to my next prediction.
  • Operator rewards will extend to the basis of hardware resources contributed to the network, or on a service performance basis for true “Proof of Service”. The benefits of these angles of incentive will spur developers to add motivation for operators to aid scaling and network service levels by rewarding contribution of more resources and/or increase node performance and availability. This will follow further realization and focus on the scaling and decentralization benefits of the masternodes model.
  • The decentralized revolution will take new ground with “Web 3.0”, largely facilitated by incentive-driven masternode networks hosting IPFS (interplanetary file system), or similar means of secure sharded data hosted off-chain. Web 3.0 will solve numerous challenges posed by current internet services and Web 2.0, including censorship and trusted parties. This masternode-hosted internet might also facilitate decentralized identity services. Advancement of decentralized identity is recognized as necessary for extending potential dApp use cases and is being spearheaded by Decentralized Identity Foundation with members including Microsoft, Blockchain Foundry, IBM, and many others.

“But Masternodes Mean Centralized”

Assessment of a combination of factors is necessary to properly determine where a network resides on the decentralization spectrum. Factors include economic (e.g. token distribution, collateral cost), quantity of active nodes, distribution of hash power in the case of Proof of Work, and overall architecture of an individual protocol including the roles/functions of nodes and the means by which these roles are fulfilled. Only an insufficient and presumptuous conclusion can be drawn based solely on the presence (or lack) of masternodes.


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*This post was originally published on Medium.

This article was curated through CryptoCurrencyNews’ Contributor Program. If you would like to write for us, send us your submission!

Featured image: DepositPhotos © artjazz

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