The aim of being a part of the world of cryptocurrency is to either make money through mining coins or to carry out a transaction. For those who want to earn money in the cryptosphere (the world of cryptocurrency), buying and selling can be a good place to start.
You can do that or you can run something we call the masternode.
In your research, you may have heard or seen this term used by the experts. If you are curious to know what it means and how it can help you, keep reading. We will cover everything you need to know about masternodes.
What Is a Masternode?
A node, as we have said many times in previous topics, is a computer that takes part in ensuring that the integrity of a network is secure. The crypto space is decentralized and distributed. That means it functions using several people running nodes from different parts of the world.
As we have said before, you would need a full node to host a copy of the blockchain (the ledger to be specific) and support the network.
The masternode is a crypto full node/computer wallet. It supports the network by hosting a complete copy of the coin’s ledger in real-time. The masternode then receives crypto coins as a reward.
As an alternative to mining, it can be very beneficial.
Explaining The Masternode
We mentioned in a previous topic that the cost and technical requirements to be successful at mining are ever going up. Running a full node computer on a network requires a lot of resources. Because of the high number of people running full nodes, it is becoming less and less profitable.
Masternodes run some special functions that include:
- Increasing the transactional privacy levels
- Enabling instant transactions
- Having a hand in voting and governance
- Helping the budgeting and treasury systems
Mining pools are notorious for taking up most of the resources because of their mining methods. The reduction of full nodes has a direct impact on the efficiency of a blockchain. In future times, we are looking at longer transaction times and network congestion.
Masternodes solve this problem. They act as full nodes and their owners get the rewards of financial gain. It is a system of making money similar to proof-of-work. Masternodes try to solve the math problems by behaving the same way as full nodes.
The operators get rewards financially using a system similar to the proof of work.
However, they operate on a system based on collateral to make sure they give genuine services as a backbone to the network. We, therefore, know them as ‘bonded validator’ systems.
A fork of Bitcoin called Dash was one of the first to use the master node model.
What Do You Need To Run a Masternode?
Masternodes can be run by anyone, the same way you can run a full node. The entry barrier is the only problem here. It ensures that no one malicious can get into the system. The entry barrier is what you need to commit or use as collateral for the cryptocurrency, to run the master node.
This is something that they do to make sure that the owner of the masternode does not cheat or corrupt the system. There is a stake for a masternode operator that ensures that they cannot take advantage of the system.
Naturally, it is less likely that a masternode operator will corrupt or cheat the system because the punishment for them comes in the form of devaluing what they hold.
We detail the minimum that you will need to set up a masternode in Dash for example below;
- A minimum amount of coins for the currency. In Dash, you will need a minimum of 1000 Dash units and PIVX MN, you will need a minimum of about 10,000 PIVX units. It varies.
- You will need a VPS or server that will host the wallet 24/7
- You will need a dedicated IP address for the server
- You will need storage space to save the blockchain
These are the four things you will need to have for any masternode to run. You will need to make sure you have enough resources first so you can run something like this. So, you may wonder what the profit looks like when all is said and done.
We will get into that in a moment.
How Do Investors Benefit From Running Masternodes?
Running the masternode is great for investors because they have an incentive to keep the cryptocoin performing well. They will earn every month or week from the cryptocurrency by making sure that they perform their part.
Their holding is the stake they have to take care of the entire network to make sure that everything runs smoothly. Each cryptocurrency has a different incentive model and as an operator of a masternode, you can get substantial income from this.
If you have the resources to do something like this, you will need to make sure you choose the right cryptocurrency to invest in. if you intend to run a masternode only, you will need to make sure that you will get an income that makes up for the amount you will invest in the system.
The return on investment calculation needs to work out before you can get into the business of running a masternode.
Estimates for Investors
You should talk to the people who know the details because they keep changing. However, at the time of writing this, it is easy to estimate how much you can get as ROI when you invest in a masternode and run it in a cryptocurrency network.
For example, if you run a masternode in Dash, you will earn a reward of 45% or thereabouts while the miners will get 55% which is split to all masternodes. The Dash website says that this translates to about 2 Dashes per week. You could up with up to 10% for your 1000 Dash invested if all factors stay constant.
It is a good deal if you think about it. Check out the respective cryptocurrencies to see what they offer and if you can run a masternode. You will need all the information you can get before investing in this.