What Is A Masternode And How Does It Appear On The Market?
What Exactly Is Masternode?
Unlike the popular belief, it is not only the day traders or those who can critically analyze the crypto market that can make money in the cryptosphere, there are many other ways through which one can make earn and profits a substantial amount of money. One of such ways of making profits in the cryptosphere is by running a masternode. Masternodes have been around since the implementation of DASH in 2014, yet masternode is only starting to receive popular attention from cryptocurrency enthusiasts and investors. Too many people are not familiar with this process, hence, the necessity of explaining the process accordingly.
Masternodes simply refer to a cryptocurrency full node or computer wallet that holds the full copy of the blockchain in real-time, similar to the way you have Bitcoin full nodes and is always up & running. However, masternodes differ very much in their functionality from normal nodes.
Masternode, short form as MN, differs because it performs some other functions aside keeping the full blockchain and relaying blocks/transactions as a full node does in Bitcoin/Litecoin. These other functions include:
- Doing instant transactions
- Enable budgeting and treasury system in cryptocurrencies
- Increasing privacy of transactions
- Participating in governance and voting
It should be noted that these functions can vary slightly from cryptocurrency to cryptocurrency depending upon how masternodes have been implemented. Masternodes do not standalone but always communicate with other such nodes to create a decentralized network. Dash was the first cryptocurrency to utilize masternodes. But since then, masternodes have become increasingly popular, especially among privacy-focused coins.
How to run a masternode?
Unlike Bitcoin full nodes, operators of MN are rewarded economically, just like miners in a proof-of-work system. MN can be run by anybody just like the full nodes in a cryptocurrency. However, there is an entry barrier set in place to ensure that the system doesn’t become malicious – the reason why MN is also called “bonded validator systems”. MN requires a bond or collateral to operate – this is certain units of that particular cryptocurrency to run a masternode. So in essence, one needs the following to run masternodes (these requirements are very much the same for any masternode cryptocurrency):
- A minimum amount of that particular cryptocurrency i.e. for DASH masternode, the minimum amount is 1000 DASH units, for PIVX masternode, the minimum amount is 10,000 PIVX units. This varies according to cryptocurrencies.
- A VPS or server to host that wallet for 24 x 7
- A dedicated IP address
- Some storage space to save the blockchain.
- Ability to run 24 hours connection without a more than a 1-hour connection loss.
What is supported by the masternode price, why can the price drop sharply on it?
Taking Dash, for instance, the 1,000 DASH masternode bond, which now equals to a breezy $1.08 mil., is held in escrow in a special Dash address. Each masternode operator is also paid fees from users who utilize a masternode’s services on the DASH blockchain, namely decentralized governance, off-chain anonymization (PrivateSend), and (DGBB) instant transactions (InstantSend). Fees and rewards are paid in the network’s native token DASH.
Returns on masternode are inversely related to the total amount of existing masternodes, high ROIs would attract more masternode operators and will result in higher coin price (as the tradable supply of the coin falls), and there would eventually be a decrease in the masternode returns.
How to calculate the efficiency?
In exchange for keeping 1,000 DASH and running a dedicated full node, operators of MN are collectively rewarded by 45% of block reward on every block, equal to miners. Another 10% of the block reward is assigned to a treasury fund, to improve the DASH protocol in ways determined by collective voting by masternode operators. Presently, there are about 4,000 DASH masternodes, staking approx. 18% of the total DASH supply and operating at an annual rate of return around 11%.
This ROI is subjected to changing variables, increases as transactions on the network grow, and decreases as more masternodes are set up.
You can become rich by running a masternode, your ROI may decrease but as long as you maintain the minimum amount, you would always receive your profit no matter how small. Masternodes are very useful for cryptocurrency investors because masternode operators are incentivized. It’s just like earning a weekly or monthly interest on your cryptocurrency holdings.
However, remember that running a masternode is far more expensive than the cost of a cryptocurrency in that a specific amount of cryptocurrency makes up a masternode i.e. 1000 Dash makes 1 masternode – This set minimum amount acts as a potential barrier to new Masternode creation. More so, as the number of masternodes increases, ROI decrease, therefore it is advisable to run one masternode.
Join Our Telegram Channel
Cryptona.co is a popular news resource devoted to cryptocurrencies, the blockchain, and new technologies. If you have breaking news, suggestions, story tip or interesting ideas to send to our journalists? Please write to us at [email protected]