It seems that the enthusiasm of passionate HODLers has finally paid off. Now that average people have beat the skepticism of investing in intangible products, the main question circulating throughout the virtual community is not How to buy BTC? but How to handle my cryptocurrencies and earn more? 

Masternodes have turned out to be quite a fruitful investment product in the cryptocurrency sphere. No hassle if you haven’t heard this term before. This masternode-earning technique hasn’t entered the mainstream crypto market yet but isn’t as far-fetched as it may sound to you at first.

3D blockchain masternode

Cryptocurrency Nodes

In crypto terminology, a node is a connection point in the form of a physical device or another system that is connected to the blockchain network and executes particular functions such as generating and transferring information through a communication channel. There are 3 common types of nodes, each of which comes with a strictly-defined set of features and functionalities:

  • Ordinary nodes 
  • Full nodes
  • Masternodes 

Ordinary nodes are the backbone of the cryptocurrency system. They set the security standards on the blockchain and protect private transactions against double-spending. In the Proof-of-Work consensus, they are represented by the well-known miners while in the Proof-of-Stake model, nodes are the stalking wallets.

Unlike regular nodes, full nodes keep a full copy of the blockchain and can communicate with over 124 other nodes. 

Ultimately, here we have the masternodes, which are a type full nodes with additional aptitudes. 

What Is Masternode?

In plain language, a masternode (also known as a bonded validator system) is a sequence of distributed servers that support the blockchain network by processing transactions and producing new blocks on the public ledger. The majority of masternodes operate on Proof-of-Stake (PoS) or a hybrid of Proof-of-Stake and Proof-of-Work (PoW) consensus mechanisms and technically, they’re nothing but a normal node or a desktop wallet that stores a full record of the blockchain in real-time. Referred to as MN, masternodes communicate with other relevant nodes to make an effective decentralized network. 

However, unlike regular full nodes that work individually, masternodes utility isn’t restricted to storage and transaction functionalities. Masternodes form a second layer of the network, which powers the blockchain to:

  • Make instant transactions 
  • Take part in voting and governance of certain protocols and networks
  • Enhance transactions privacy 
  • Power the crypto treasury system

These functions can vary to a great extent from one cryptocurrency to another depending on the level to which the respective network has implemented them. Dash was the first cryptocurrency to launch a masternode and introduce services like InstaSend, PrivateSend, and Decentralized Governance. 

How to Run a Masternode?

Much like full nodes, literally, everyone can run a masternode. You’ll only have to pass what is called an entry batter as a guarantee that you won’t misuse or cheat the system for malicious activities. 

The entry barrier comes in the form of a “security deposit” of a certain crypto amount that the masternode operator has to leave or collateralize. It’ll be enough proof that they won’t try to corrupt the network as otherwise, their HODLings will be taken away. 

The amount of coins (collatera)l you have to stake depends on the type of coin. Thus, for a DASH MN, you’ll need 1000 DASH units, while a PIVX MN requires 10,000 units.  

Now, let’s see what further requirements the masternode takes:

  • a VPS or server for 24/7 availability of the node — run on the latest Linux or Ubuntu OS version.
  • a dedicated IP address 
  • enough storage space to save the respective blockchain 

This server stage of the process isn’t demanding by its nature. All other things are clearly explained on the masternode cryptocurrency official website. 

Finally, these pre-requisites are more or less the same for all available masternode cryptos. If you’ve already checked them out, it’s time to find out how they can improve your crypto balance.

How Are Masternodes Useful for Cryptocoin Investors?

First, masternodes fix the issue with the scalability on the blockchain network, which is the greatest challenge for the Bitcoin blockchain. By its nature, the bitcoin blockchain doesn’t process new transactions fast as it takes approximately 30 mins for confirmation in optimal settings. The masternode mechanism is able to speed up transactions and increase blockchain productivity accordingly.

In return, node operators get a block reward for their contribution. In a sense, you can better understand masternodes as a means of passive income with a weekly or monthly interest of your already-existing crypto holdings. The pay-off time varies from one cryptocurrency to another. 

More importantly, you should sense the most profitable investment cryptocurrency at the time — and here’s the catch — there is a high-risk factor in these types of investments so you can’t jump into a project without a precisely calculated ROI, which is the proportion of the percentage yield against your initial investment. 

However, there is much more than ROI to take into account when estimating the return of investing into a masternode. The ROI of a certain project may be over 100%+ but show discouraging low liquidity and inflation rates, which will result in continuous devaluation of the cryptocurrency and hence, only short-term sustainability.

Masternodes are likely to have high prospects for the years to come but only if they manage to balance inflation and community governance, and to present innovative products with practical utility. 

Cryptocurrencies That Rely On Masternodes

At this point, there are plenty of cryptocurrencies on the market that enable you to run a masternode but only a few are worth your attention due to the unsatisfactory incentive plans. The most notable examples include Dash (DASH), PIVX (PIVX), Ethereum (ETH), Block (BLOCK), Solana (SOL), ChainCoin (CHC), XtraBytes (XBY), Crown (CRW), ION (ION), Monetary Unit (MUE), Neutron (NTRN), Zcoin (XZC), Syscoin (SYS), and Vcash (XVC).

Here you can find the full list of all crypto assets that rely on masternodes

How Much Can I Make Running a Masternode?

As implied above, the earnings and the payment approach are individually determined by the chosen cryptocurrency. For example, the masternode-leader DASH rewards masternode operators with 45% of the mining fees and the rest goes to miners. On average, you can earn up to 2 DASH per week. If we do the math, you’ll return more than 10% of the collateral in less than a year but only if DASH keeps its current dynamic of growth in the future. 

A Few Words Before You Go…

Running a masternode can be a profitable activity but it’s not a shortcut to overnight fortune. On the contrary, masternodes are a well-suited opportunity for experienced HODlers to ensure fair passive income for long-term stability. For absolute beginners, it’s a bit unreasonable to invest in some crypto for the purpose of creating a masternode. For illustration, running DASH masternodes requires a minimum amount of 1000 DASH units, and the full coin supply is limited to 8.7 million DASH. 

However, nobody has ever managed to give a 100% accurate prediction on the development of a certain coin so it’s sometimes worth going out on a limb — certainly, not without an effective strategy.