If you have been in cryptocurrency space for around atleast an year or two then you must be familiar with this word called “Masternode”.Now for a “noob” this word might sound very daunting and you might have been considering to close this article by now and move on BUT let me tell you this might be one of your “Million Dollar”mistakes.And that would hurt more when i say this could have been your passive income (Nah this ain’t no MLM article and i am not going to ask you to buy my products).
Well what brought me to write this article is the fact that when i started exploring about Masternodes,most of the things that are available online about couldn’t help me get my questions answered and i had to go through many articles ,forums and every possible avenue you could think of.
So here in this article I have compiled each and every piece of information that I had learned over the experience and have tried to go into intricate details about Masternode that matters for an Avg Joe.
What is a Masternode ?
In simple terms ,Masternode is a decentralised network of computer wallets that keeps the copy of a blockchain and helps the blockchain network in many ways.The first ever project to adopt this model was DASH.
Almost all masternodes serves the network but the tasks performed can vary from one cryptocurrency to other.Some of the common functions that they perform are
- Direct send / instant transactions
- Private transactions
- Voting on budget funding and enabling treasury system.
- Decentralised Governance
- Incentivizing the owner of Masternode.
Things required to run a Masternode
Collateral Amount
A Masternode can be run by anyone but in order to keep the network stable and prevent from malicious activities there’s an entry barrier put in place that every MN owner(short form of masternode)commits to.
Apart from that putting a collateral barrier improves the value of a coin as these coins are “locked-away” and owners are not able to trade or sell them, making a MN owner a next level of HODLer.
The collateral required can vary from one coin to another as for example, in order to own a DASH MN you would need a 1000 DASH and for PIVX you would need a 10,000 PIVXA VPS or a server to host the wallet and be able to run it 24/7
You can use any service like Digital Ocean or Vultr. A $5 per month server will do fine.
3.A dedicated IP address
These usually come with the VPS/server.
For people who are less tech proficient can simply choose any web application service like Gin Platform which makes it more easier to setup your masternode with just few clicks.Here’s the video link that will help you with GIN Platform Walkthrough.
Why should one choose to setup a Masternode ?
Well apart from the all the benefits that MN provides to the network,the biggest factor that would motivate one to own a MN is that one can get incentivised for serving the network when they setup a MN in the form of “Block rewards”
By setting up a MN what you are doing is making the network more decentralised and also making it more stable in terms of coin value.
As taking an example of DASH masternode, that was worth $12,000 in January 2017 went straight up $1.2 Million by January 2018.(See told you a Million Dollar! )
Now again the block rewards and the “Rewards frequency” vary from one coin to other.For example DASH pays out rewards once in 8 days and running a PIVX masternode gets you a reward once every 23Hrs.
NOTE:- The average MN reward frequency goes on to increase as more and more masternodes are set up resulting in increasing the network weight.
Things to keep in mind while choosing a Masternode coin
There are hundreds of coins available that work on the masternode model and it can be difficult to choose which MN they should run.
There are several factors like the cost of masternode ,ROI,volume,market cap etc. that can help you find the best masternode under your budget.
The most popular sites where these data are readily available are Masternode Online ,Masternode Pro.
KEY POINTS
- Things to remember is you don’t would not want to choose a masternode that is way over your budget or end up running a masternode that has a 0 volume.
- Always visit all possible media channels of that project prior to hosting masternode like their Discord,official website,Telegram channel,check their activities on Github and asking questions regarding about the development with developers and team membres.
- One more important fact to consider their wallet support for different OS like Mac,Windows,Linux and how well funded is the project .A project that is short on funds can go out of business anytime.
- Check wether the coin is available on major exchanges and if not ,do they plan to list their and what’s their total supply.
- How easy it is to setup a project’s MN.Do they provide sufficient support staff to attend your queries ?
- When is comes to masternodes rewards ,its always about the risk to rewards ratio .People are tend to choose a project that is already well developed and has significant amount of crypto exposure. The problem with these it they reward you less as these are less risky masternodes investments.
Is every Masternode project based on Proof of Stake (PoS) ?
Hmmm …..not necessarily.We know that how Bitcoin works on the Proof of Work (POW) mining process to support and run the network where miners have to setup rigs and compete to solve increasingly harder mathematical problems to win a block reward.Making it a profitable business only for those with big machine setups or who have access to inexpensive energy.
Proof of Stake (PoS) is the answer to this problem as PoS allows anyone with a computer and internet connection to become a part of network.And by holding a certain amount of coins they get a share in form of reward from the newly minted coins when a new block is created.
Now with PoS in place many people misunderstand that masternodes are just an extension of “Staking” model but that is not the case as their are many coins that operate on the PoW consensus mechanism and makes use of masternodes.
So,keep in mind its not necessary to choose PoS coins specifically to run masternodes.
How much can you earn from a masternode ?
This totally depends on the project you choose and as said earlier owning a masternode is HODLing on a next level.Most of the masternodes coins pay around five to twenty percent of a block reward hence offsetting the cost of operating a masternode and one can even compound the rewards and create further masternodes.Remember the example of DASH ?
Miscellaneous FAQs
Question:- Can I host 2 masternodes on a a single VPS ?
Answer:- You can run two masternode of two different projects on a single VPS by just installing their wallets and choosing different ports.However,if you consider to host two MN of similar projects then their might be a chance of port and datadirectory conflicts.
Question:- Why does the first reward takes the most amount of time ?
Answer:- There are qualifications first before joining blockchain to get regular rewards and the first reward in a way registers your masternode on network.
Question:- What are things one should never share with anyone about their masternode ?
Answer:- You should NEVER EVER share your wallet.dat, debug.log, private keys and the config files that has the private information with anyone as these can potentially give access of your masternode to someone else.
Liked this article ? Please do upvote and in my next article i’ll show you how to setup a MN step by step and take you further on our journey of exploring masternodes.