How to Run a Masternode

You may expect only people who can evaluate the market movements, or so-called day traders, to be the only ones that can earn money in the digital asset markets. Well, it turns out that this isn’t true for the cryptosphere, as this industry offers several ways of making a profit and earning a substantial sum of money. One of these methods is by running a masternode.

Before the concept of a masternode, making money on the crypto market mostly required mining or stocking the cryptocurrency itself and expecting the price to grow. However, with masternode hosting, you can achieve relatively regular and steady returns as well. So, how to run a masternode? There are two options: first, you can run cryptocurrency master nodes by yourself or through a masternode hosting platform.

In this article, we’re going to define what a masternode is and discuss the connection between Dash and a masternode. Next, we’ll go over the things you need in running a masternode, how much you can earn from it, and how to host masternode.

Master Nodes Explained for Beginners

What is master node? A masternode is a cryptocurrency computer wallet whose main purpose is to store a full copy of a blockchain in real-time. Simply put, a computer device that can host a full blockchain archive of a particular cryptocurrency is a masternode.

Masternodes give inducement to regular node operators to conduct the main operations of running a blockchain and, in turn, require initial collateral (or stake) in order to work.

Masternodes, as their name suggests, are different from both a regular and a full node. Masternodes, just like a full node, relay blocks/transactions and store the full blockchain, but unlike full nodes, they don’t mine new blocks of data.

Masternodes store all the data for the network in crypto wallets which are entirely synchronized and connected to the blockchain 24/7, and they confirm or reject new transactions that are attached in the process of making a new block. They also give users unique governing and voting rights depending on the blockchain protocol in use.

Masternodes solve some of the technical complications involved in running a full node on the blockchain network and the increasing costs associated with it. They cost less and incentivize the network with a collateral-based system.

DASH Masternodes

Darkcoin, which was later rebranded to DASH (“Digital Cash”), was a pioneer cryptocurrency that adopted the model of a masternode. DASH is a cryptocurrency that was created as a fork of Bitcoin (BTC) which means that the existing BTC code was duplicated and enhanced to address some shortcomings faced by users.

The DASH masternode is a server that contains a complete copy of a DASH blockchain.

This masternode ensures a specific minimum level of functionality and performance to fulfill particular tasks related to participating in governance and voting, completing instant transactions (known as “InstantSend”), private transactions (known as “PrivateSend”), as well as facilitating resource and budgeting systems for digital assets.

The people operating the masternodes are rewarded for their services using the scoring system known as Proof of Service (PoSE). Proof of Service is a scoring system used to determine whether a masternode is providing network service in good faith.

The DASH network has achieved remarkable success with its masternode, pushing a substantial emulation of the attributes within the bigger blockchain ecosystem. The masternode model was accepted by other cryptocurrency projects because of its particularly customizable characteristics.

Because of the benefits of using masternodes instead of regular nodes, over 500 cryptocurrencies, such as Zcoin, PIVX, and Ethereum have started using masternodes as well. Here’s a list of all digital coins using this type of node.

How to Setup a Masternode?

If you’re able to run a full node on a cryptocurrency blockchain, you’re able to run a masternode too. But there is something that you should pay attention to when it comes to this type of node – the system can get malicious, i.e. someone can easily manipulate the system to make a profit. To avoid this, you need to pay the entry barrier, meaning in order to run a masternode you need to dedicate or collateralize particular units of a certain cryptocurrency.

The entry barrier prevents corrupting and cheating the system by the masternode owner for their own gain. The best way of doing this is by implementing an entry barrier, so the masternode operator will have a stake (something to lose).

By doing this, the masternode operator will not try to cheat because they have a stake in running the masternode properly. However, if the masternode operator performs some kind of scam, they will be penalized with a devaluation of their own holdings.

To make a masternode setup, you’ll need the following things:

• First, you’ll need to lock up a minimum required amount of units of the particular cryptocurrency. One of the most popular masternode coins in the cryptocurrency market is DASH. For example, for a DASH Masternode you need a minimum of 1,000 DASH coins, while for PIVX Masternode you need 10,000 PIVX coins. As you can see, the minimum required amount of units varies from cryptocurrency to cryptocurrency.
• The next thing you need is a VPS (Virtual Private Server) or a server to host your wallet 24/7.
• The masternode needs to be always online, and because of that, you’ll need a static IP address.

In terms of the collateral, its amount varies from coin to coin. The user can’t withdraw the collateral while the masternode runs. However, the user can cease running a masternode at any time and the collateral will be transferred to their cryptocurrency wallet, ready to be cashed out.

If you can’t pay for the running of a full masternode because of the high entry limit, there is a solution and it’s called running a shared masternode.

This means that you and other users can reserve your coins with a specified minimum stake. When the reserve accumulates all the coins that you need in order to run a masternode, then you can start the fee generation model. The fees are divided between the users, based on percentage per user, of the overall stake.

Masternodes can be recompensed once in a day or a few times in a day, depending on the network and other aspects such as possible rises in the price, the coin in question, and the specific protocol required.

How to Host a Masternode

Basically, there are two ways in which you can run the masternode:

• Self-operated masternode
• Masternode hosting services 

If you want to set up your own masternode (self-operating masternode), you need to have a certain level of knowledge of blockchains and Linux server operating systems. This can be hard and it can cost more. Besides, if you decide to self-operate with your masternode, you must assume responsibility for setting up, securing, and maintaining both the server and collateral.

But, if you want to make your life easier, several community members offer dedicated hosting solutions (masternode hosting services) for a fee.

This is similar to the companies that offer web hosting. If you take advantage of this service, it means that the user only needs to provide the masternode collateral (masternode coins) and to pay the hosting fee in order to receive a payout from the block reward.

How Much Can You Earn by Running a Masternode?

Running a masternode gives you a chance to earn a steady passive income. Distinctive cryptocurrencies have distinct simulation models but they still allow masternode operators to make a decent income. The simulation models are based on several factors:

• The cryptocurrency in question;
• Whether the asset is increasing or decreasing in value
• The frequency of payouts;
• The amount of stake you need to pay as collateral.

Running masternodes can be overly profitable for you if you decide to take a leap with any coin, as long as that coin’s worth grows significantly in the upcoming years.

The crypto economy has the potential to expand from here, but one thing you can count on is that on the digital asset market, nothing is for certain.

Masternode operators have the opportunity to earn between 5%-20% of a delegated block reward. This depends on the coin that you support.

The Pros and Cons of Running a Masternode

Before you set up a masternode, it’s important to do some research on the perks and drawbacks of running a masternode.

As we said before, the staking of coins is a significant part of running a masternode and its purpose is to provide network safety. This can be considered both a disadvantage and advantage. The advantage is that the network will be used by masternode operators who are incentivized to stay honest because any malicious activity will result in a reduced or confiscated stake.

On the other hand,  you still need to lock away a significant amount of coins as a stake. The downside of this is that the staked coins can’t be used as capital in any way. If the locked coins are moved from the cryptocurrency wallet connected to the masternode, it reverts to being a normal node.

Pros

Masternodes are helpful in stopping potential schemes by miners that may have a negative effect on the security of the network. Masternode owners are allowed to reject or accept any transaction approved by miners. This sort of oversight is crucial in guaranteeing and maintaining the crypto ecosystems’ health.

Financial motivation is the main purpose of running a masternode. The financial rewards depend on the seniority level of the masternode operators. If they stake tokens longer, they get a higher masternode reward. Because of this, running a masternode is a simple method to earn cryptocurrency on top of retrieving your initial investment.

Because the staked tokens are kept in reserve, and in the meantime the owners profit from the network, some people view running masternodes as a way of “HODLing” (crypto-niche acronym for hold on for dear life or in this case, holding onto their crypto assets). So, many people see running a masternode as a step towards economic supremacy.

Another advantage of running masternodes are voting rights. Each masternode receives one vote (yes/no/abstain) on each proposal submitted to the system. By voting, the masternodes operators can be a part of the projects they support. 

Cons

Some people consider the centralized nature of running a masternode to be a disadvantage. A centralized system is one in which a central entity (in our case, the masternode) makes decisions or performs system-wide functions on behalf of all the other nodes within the system.  

Moreover, there is a theoretical possibility that a group of masternode owners can gain control over 51% of the entire network and initiate a so-called “51% attack” on the network (it refers to an attack on a Proof-of-Work blockchain). If this happens, the minority masternode owners (49%) will lose the lock rewards and their total amount of stake. A 51% attack would undermine the digital asset’s ecosystem and have a negative impact on the value of the rest of their tokens.

Frequently Asked Questions

What is yieldnodes?

Yieldnodes is an open-source project for generating passive income from unused computing power. Masternodes are nodes in the network which provide additional security features and rewards. They also generate revenue based on their ability to process transactions. This is done through the Proof of Stake consensus algorithm.

A Few Words Before You Go…

A masternode is a computing device that hosts a copy of a full blockchain ledger of a certain cryptocurrency.

Masternodes have a special function that includes increased transaction privacy and the safe carrying out of instant transactions. At the same time, it creates the space for operators to be involved in the governance of the blockchain through voting.

The main requirement you need to run your own masternode is a minimum amount of crypto coins and the right technology at hand. In a nutshell, running a masternode is a good way of earning a passive income.

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