Masternodes are an interesting way to earn money in the crypto and blockchain world. However, such a masternode is not only a source of income, but an integral part of some blockchain networks.
In this article, we want to show what is meant by a masternode in the first place. You will also learn why masternodes are a lucrative way to generate income on your own hosting.
Masternode definition – a short journey through the blockchain world
In order to clarify the principle of a masternode a bit better, let’s take a closer look at the origin of the term. The component that most investors can relate to is the node. Every blockchain network consists of different nodes, which take over the functions of the network, such as the validation of blocks.
However, classic nodes “only” perform simple tasks such as mining. A masternode, on the other hand, takes on more advanced tasks such as:
- Processing anonymous and confidential transactions.
- Instant transactions
- Are entitled to participate in governance and have voting rights
What tasks and voting rights a masternode has can vary greatly and depends on the platform.
Many are mistakenly convinced that masternodes are an exclusive proof-of-stake phenomenon. At first glance, this assumption may seem logical, as investors need to own a larger stake, i.e., a large share of the coins, in order to operate.
However, there are also proof-of-work ecosystems that have masternodes. Probably the best-known example of this is Dash.
Regardless of the consensus algorithm of the underlying blockchain, the function of a masternode is to create additional utility for the network. Often these are benefits such as increased security or better scalability on the network.
In addition, the high investment limit prevents monopolization and centralization, such as through pool mining. The operators of masternodes are regularly paid rewards in the form of coins for the additional tasks they perform for the network.
The amount and frequency vary greatly and depend on the chosen platform. The most famous and first blockchain platform to introduce masternodes was Dash. Many have tried to copy the success of Dash and its masternodes, so today there are numerous platforms that rely on these particular nodes.
Spoilt for choice – identify scams, minimize risks
In order to be allowed to operate a masternode, users often have to make a larger investment. Fraudsters are increasingly taking advantage of this fact. It regularly turns out that most projects with masternodes are scamcoins.
For this reason, interested parties should definitely read the project’s whitepaper before investing to minimize their personal risk. You should check the following points before setting up your own masternode:
What is the expected return on investment (ROI)? Please be aware that too high returns do not work in the long run. Historically, the return on investment for a masternode has been between 5% and 25% – extreme outliers are possible, of course.
- Does the project meet a use case? Solid cryptocurrencies fulfill a purpose and the development team has concrete ideas for further development. If there is no goal and no purpose, then you should look for other projects.
- Does the project have a whitepaper? A whitepaper is the crypto project’s application kit. Some choose to forgo it, preferring to focus on the work itself. This can be true for a few, but for most it rather speaks for the fact that there is no concept behind it. If a whitepaper is available, it should be as error-free as possible and the content should be easy to follow.
- Which team is behind the project? What references do the developers have and have they already gained experience in other projects? Even pseudonymous personalities are more trustworthy than unknown developers.
- Does the project have a website? A website is often created quickly and is a sign of trust for the community. Projects that are only promoted through forums or by other investors are often not trustworthy.
- Is there a GitHub site? Github is a website that hosts the public code repositories for projects and should contain details of ongoing code releases and changes. An example of a bad GitHub is Bitcoin POS.
- How quickly does the team respond to incoming inquiries? How active are they on social networks? If a project has no new developments to report for an extended period of time, it’s usually not a good sign.
- Keeping an eye on the course. If the price rises drastically for no apparent reason, it may mean that the price has been artificially inflated. This can happen, for example, due to new users buying a masternode. However, this price increase will not be able to sustain itself in the long run. As soon as users realize that their nodes are not yielding enough profits, they will dump the coins again and the price will collapse.
If you pay attention to these points, you can easily expose the fraudulent masternode offers. Unfortunately, no one can give you an absolute guarantee of safe masternodes. As with any investment, there is a certain amount of risk that investors must factor in in the form of expected returns.
Nonetheless, a masternode is a great way to earn passive income with cryptocurrencies. A good place to start discovering Masternode-enabled blockchain platforms is Masternodes.Pro.
Masternodes Pro View Masternodes Pro View.
Projects that use Masternodes
There are a variety of projects that use masternodes in their networks. Many of these projects are unknown, and small.
Better known examples include: Block (BLOCK), Bata (BTA), Crown (CRW), ChainCoin (CHC), Dash (DASH), Diamond (DMD), GoByte, Innova, ION (ION), Monetary Unit (MUE), Neutron (NTRN), PIVX (PIVX), Stratis (STRAT), Tezos (XTZ), Vcash (XVC) and XtraBytes (XBY).
What is necessary to run a masternode?
Have you decided to set up your own masternode? Then probably the biggest challenge will be on the financial level, because sometimes huge investment amounts are required to set up your own masternode. An example for the high costs is DASH. Investors need 1,000 DASH to set up a masternode.
However, there is no fixed number for the amount of the required stake. Rather, each project autonomously decides the required number of tokens. This ensures that the Masternode operator will act in the interest of the platform. The high stake also prevents the network from being centralized.
If an investor has the necessary capital, virtually anyone can operate a masternode. In addition to this, the following points are also important:
- Something more than the minimum number of coins should always be purchased. So, for example, if 1000 coins of a cryptocurrency are needed, at least 1010 coins should be purchased through an exchange or similar to be able to pay the transaction fees incurred.
- VPS or another type of server must be used to be connected to the network 24/7. Only an active masternode can bring in profits. The cost of the masternode server should also be factored in to make the masternode worthwhile.
- A fixed IP address, wallet and node address.
- Sufficient storage space for the blockchain.
If these points are fulfilled, then nothing stands in the way of the Masternode and a regularly paid passive income.
Are Masternode pools an alternative?
First and foremost, large cryptocurrencies like Dash, are not really an option for most investors. The primary reason for this is the investments required. Due to the high risk, a masternode should only be an admixture in the portfolio.
The alternative are so-called masternode pools. In such a pool, you as an investor do not invest in a selected masternode, but in a broad pool of different projects. You therefore benefit from the financial strength of the provider and its members. You receive a share of the commission on the capital you invest. A masternode pool is similar in principle to a mining pool.
Currently, the largest providers of masternode pools are NodePools, GetNode and StakeCube. Besides the fee model and the minimum holding period, the various masterpool providers mainly still differ in the staking coins offered.
However, the largest coins, such as DASH, PIVIX, ZCOIN and Blocknet are offered by almost all providers. If you are considering an investment in smaller coins, you are advised to take a close look at the fundamental development of the project.
While the high potential returns may seem attractive, staking gains can easily be wiped out by downward price swings.