What is a masternode? 

Everything about the masternode is explained here 

Masternodes are an interesting way to make money in the crypto and blockchain world. However, such a masternode is not just a source of income, but an integral part of some blockchain networks.

In this article we want to show what is actually meant by a masternode. You will also learn why masternodes are a lucrative opportunity to generate income.

Masternode definition - a short journey through the blockchain world

In order to clarify the principle of a masternode a little better, we want to go into the origin of the term in more detail.

The component with which most investors can do something is the node. Each blockchain network consists of different nodes that take on the functions of the network, such as validating blocks. 

However, classic nodes "only" take on simple tasks such as mining. On the other hand, a masternode takes on additional tasks such as

  • Process anonymous and confidential transactions 
  • Instant transactions 
  • Are entitled to participate in governance and have voting rights 

The tasks and voting rights a masternode has can vary widely and depend on the respective platform.

Many are mistakenly convinced that masternodes are an exclusive proof-of-stake phenomenon. At first glance, this assumption may seem logical, because investors must have a larger stake, i.e. a large proportion of the coins, to operate.

However, there are also proof-of-work ecosystems that have masternodes. 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 benefits for the network. Often it is about benefits such as higher security or better scalability in the network. 

In addition, the high investment limit prevents monopolization and centralization, such as pool mining. The operators of masternodes regularly receive rewards in the form of coins for the additional tasks that they take on for the network.

The amount and frequency vary greatly and depend on the platform chosen. The most famous and first blockchain platform that Masternodes introduced was Dash. Many have tried to copy the success of Dash and its masternodes, so there are numerous platforms today that rely on these particular nodes. 

The agony of choice - identify scams, minimize risks

In order to operate a masternode, users often have to make a larger investment. Fraudsters are taking advantage of this fact more and more often. It is regularly shown that most projects with masternodes are scamcoins. 

For this reason, interested parties should read the project's whitepaper before investing and thus minimize the 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 returns that are too high will not work in the long term. Historically, the return on a masternode is between 5 and 25% - extreme outliers are of course possible.
  • Does the project meet a use case? Solid cryptocurrencies serve a purpose and the development team has specific ideas for further development. If there is no goal or purpose, then look for other projects. 
  • Does the project have a white paper? A whitepaper is the application folder for the crypto project. Some do without it and prefer to concentrate on the work itself. This may be the case with a few, but with most of them it suggests 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 understand.
  • Which team is behind the project? What references can 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 quick to set up and a vote of confidence for the community. Projects that are only advertised via forums or by other investors are often not trustworthy. 
  • Is there a GitHub page? Github is a website that hosts the public code repositories for projects and should provide details on ongoing code releases and changes. An example of a bad GitHub is Bitcoin POS .
  • Presence, social media and communication. How quickly does the team react to incoming inquiries? How active are you on social networks? If a project has no new developments to report for a long period of time, it is usually not a good sign. 
  • Keep an eye on the course. If the price rises dramatically for no apparent reason, it may mean that the price has been artificially inflated. This can happen, for example, through new users who buy a masternode. However, this price increase will not be sustained in the long term. As soon as the users notice that their nodes are not generating enough profits, they will sell the coins again and the price collapses. 

Those who pay attention to these points can easily expose the fraudulent masternode offers. Unfortunately, nobody can give you an absolute guarantee for secure masternodes. As with any investment, there is a certain risk that investors have to take into account in the form of expected returns.

Nonetheless, a masternode is an excellent way to generate passive income from cryptocurrencies. A good place to go to discover Masternode-enabled blockchain platforms is Masternodes.Pro. 

Projects that use masternodes

There are a number of projects that masternodes use in their networks. Many of these projects are unknown and small. 

Well-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 does it take to run a masternode?

Have you decided to set up your own masternode? Then the greatest challenge will probably be on the financial level, because in some cases enormous investment amounts are required to set up your own masternode.

An example of the high cost is DASH. Investors need 1,000 DASH for a masternode.

However, there is no fixed number of stakes required. Rather, each project independently decides the required number of tokens. In doing so, the company ensures that the masternode operator will act in the interests of the platform. The high stakes also prevent the network from being centralized.

If an investor has the necessary capital, practically anyone can operate a masternode. In addition, the following points are also important:

  • You should always buy a little more than the minimum number of coins. If, for example, 1000 coins of a crypto currency are required, at least 1010 coins should be bought via an exchange or something similar in order to be able to pay the transaction fees. 
  • VPS or some other type of server must be used to be connected to the network 24/7. Only an active masternode can generate profits. The costs for the server should also be taken into account, so that the masternode is also worthwhile.
  • A fixed IP address, a wallet and a node address.
  • Sufficient storage space for the blockchain 

If these points are met, nothing stands in the way of the masternode and a regularly paid passive income. 

Are masternode pools an alternative? 

Most of all, big cryptocurrencies like Dash are not really an option for most investors. The primary reason for this is the required investments. Due to the high risk, a masternode should only represent an addition to the portfolio. 

The alternative are so-called masternode pools. With such a pool, you as an investor do not invest in a selected masternode, but in a broad pool of different projects. So you benefit from the financial strength of the provider and its members.

You will receive a portion of the commission on the capital you have invested. A masternode pool is basically similar to a mining pool. 

The currently largest providers of masternode pools are NodePools, GetNode and StakeCube. 

In addition to the fee model and the minimum holding period, the various master pool providers mainly 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 investing in smaller coins, you are advised to deal intensively with the fundamental development of the project.

Although the high potential returns may appear attractive, the staking profits can easily be canceled out by downward price fluctuations.