Masternodes: A Lucrative Passive Way of Investing in the Crypto Space

Beginner’s Guide / 13.05.2020

The rapid expansion of the crypto space has seen several innovative ways of generating substantial profits apart from just simply trading cryptos by buying low and selling high. One such innovative way of generating profits in the crypto space without trading is running Masternodes, which have increasingly become popular.

Simply put, Masternodes are a series of servers that underpin a blockchain’s network. Masternodes maintain the blockchain by allocating the task of validating the blockchain to machines that are not previewed to mining. Masternodes eliminate the competitive aspect of the POW consensus mechanism by rewarding nodes for the work.

Currently, there are over 400 blockchain-based projects which allow members to operate masternodes on their blockchain, notably DASH, Syscoin, and PIVX, among others. Here is an in-depth guide to Masternodes.

Masternodes Explained

As mentioned earlier, Masternodes refers to cryptocurrency full nodes or computer wallets that run and validate transactions in real-time under a consensus-based protocol in a decentralized network of connected computational devices. Masternodes are quite like normal nodes but entails additional features that make them a Masternode.

Unlike usually thought or considered, Masternodes can run on both Proof-of-Stake and Proof-of-Work consensus mechanisms. Most crypto enthusiasts usually make a mistake regarding Masternodes as exclusive to coins leveraging the POS consensus mechanism. In fact, you can run a Masternode on any coin regardless of the coin you have in mind. As long as you’ve collected a coin above the required fixed amount, you’re good a run a Masternode even on Bitcoin’s blockchain.

How Do Masternodes Work?

Masternodes rely on staking to function, just like Proof of Stake. To run a Masternode, you’d first need to buy a substantial amount of the currency you would like to run the Masternode. For instance, to run a Masternode on DASH, you’ll need 1,000 DASH, equal to $72 300. Once the Masternode is live and operational, it accommodates a unique series of functions, including instant and/or anonymous payments. Masternode also enables a decentralized governance system to work within the blockchain. Masternodes are always in constant communication with other networks to achieve a decentralized network.

Masternodes share 45% of block rewards with the blockchain’s miner as compensation. 10% of the remaining funds are channeled to the blockchain’s treasury fund, with operators given the opportunity of voting on proposals for how the funds will be spent to improve the network.

Depending on the currency, the guidelines for running a Masternode differ significantly. If these guidelines are broken or aren’t met, a Masternode is stopped from operating.

Functions of Masternodes

Masternodes special functions in a blockchain network, including:

  • Enhancing privacy of transactions
  • Participating in governance and voting
  • Performing instant transactions
  • Facilitates budgeting and treasury systems in cryptos

How to Host a Masternode

Usually, depending on the coin, you’ll need quite a big capital to host a Masternode. Also, hosting a Masternode requires a bit of technical knowledge in the Linux command line. Alternatively, you can hire the services of a reliable third-party expert if you don’t have the technical know-how, or you can host on 3rd party masternode platforms.

To run a Masternode, you will need a web hosting company to host the Masternode. When choosing a hosting company for Masternodes, you would want to avoid regular website hosting since you will require a VPS server that gives you full control over it, plus allows you to install any software of your choice.

Hosting Masternodes-Return on Investment

Running a Masternode is a capital-intensive venture, and you’ll need to be committed to generate substantive profits. For instance, a Masternode needs to be online constantly (24/7) to be rewarded. If unfortunately, your Masternodes goes offline, it can be terminated and the profits canceled. Additionally, even for a single hour, downtimes will substantially wipe out any profit generated on that day. Running a Masternode, therefore, is not a walk in the park – it requires full commitment.

Nonetheless, Masternodes have a lucrative Return on Investment (ROI). With constant commitment, you can generate an ROI of 11% per annum. This figure can go up if the market value of the coin staked increases. For instance, DASH was valued at $11 on 1st January 2017 and $1100 on 1st January 2018, representing a stake value of over $1M. This drastic increase in value meant that DASH stakers earned increased rewards and were also paid in Dash, with the value increasing by a similar amount over that period.

Benefits of Masternodes

Masternodes are an excellent way of earning passive income in the cryptocurrency sector. Thus, it provides an opportunity for crypto investors to generate substantial profits. For a blockchain network, Masternodes function to protect the network from various attacks, such as 51% attacks. Masternodes also maintains the decentralization of blockchain networks by eliminating investors’ premise of purchasing a large amount of a particular coin to control the network-as with Bitcoin whales.

Cryptocurrencies on Masternodes

Numerous projects rely on Masternodes; here are some examples.

  1. Dash

Dash was the first cryptocurrency to implement Masternodes in its ecosystem. Masternodes on the DASH blockchain perform specialized tasks such as “PrivateSend” and “InstantSend.” Also, Masternode operations on the DASH network can vote on treasury and governance decisions. Running a DASH Masternode is extremely expensive, and you will need upwards of 1,000 DASH (1 DASH=$73 USD)

  1. Stratis

Stratis (STRAT) is a platform where developers and companies can learn all about blockchain technology. Stratis recently launched a Masternode product on the major Microsoft Azure marketplace. In an announcement, the platform said, “The Masternode technology implements a collateral verification feature that requires the node operator to provide 250,000 Strat to be held in a watched address on the blockchain. This requirement helps to incentivize the supply of appropriate resources required to operate the network.”

  1. PIVX

PIVX is yet another crypto project that leverages Masternodes technology. To run a Masternode, users are required to deposit 10, 000 PIVX (10,000 PIVX = 1 PIVX masternode). Like Dash blockchain, PIVX Masternode operators are given voting rights to make governance decisions and earn rewards.

Final Thoughts

Masternodes presents innovative ways of generating substantial profits in the crypto sector. While they are quite capital intensive, they have high returns on investment. It’s worth your time, money, effort, and risk if you’re looking for ways to diversify your investments in the crypto space.

Holds a degree in BSc. Nursing from the University of Cape Coast, Ghana yet an addict to the blockchain technology and the cryptosphere. He combines the promotion of crypto projects and also the making of professional contents all to get innovative projects to the real world. He is a passionate Community manager and a Marketing Advisor for blockchain startups.