What Are Masternodes and the Hype on Earning from Them? - Coindoo

What Are Masternodes and the Hype on Earning from Them?

Editorial Team Avatar
Oct 1, 2018
5 min reading time

The term ‘Node’ does a good number of rounds within the crypto space. Anyone with nothing more than a remote interest in how Blockchains work must have come across the word. Thanks to Dash cryptocurrency and network, we now have masternodes. Today, masternodes are synonymous with passive earning on Blockchain.  They have garnered a lot of interest because we all want to make that extra dime whichever way, and earning it without breaking a sweat is all too enticing. As such, naturally, the primary questions center on ‘What are masternodes?’ and ‘How do they work?’


Sometimes, they are made to sound so complex the concept could be off-putting. Other times, explanations are way too simplified they are misleading – one could start fantasizing on creating immeasurable wealth off hosting masternodes. Here, we shall strive to give accurate information by simplifying the concept without losing the crux of the matter.

To begin with, a node can be defined in so many ways; the simpler one is a computer interacting with a Blockchain Network. In the crypto space, there is a ‘three-level’ nodes classification. The first one and basic level is a plain node. These are clients who operate on the network with wallets. Since wallets are synchronized with the network, for as long as their activities contribute to the network, they are nodes. Then there are what we call Full Nodes. They are more common with Bitcoin and go further than ‘just nodes’ by keeping a copy of the Blockchain, verifying entries on mined Blocks and either rejecting or accepting them as valid. Ultimately, we have Masternodes.

Masternodes, mostly abbreviated to MN, are the third tier nodes. They are assigned the same functions as Full Nodes with additional special responsibilities. They help in improving the privacy of the blockchain and executing instant transactions. They also participate in enabling budgetary as well as participating in treasury and governance voting. These are general functions of Masternodes but do vary from one cryptocurrency to another. By performing these obligations, users who run Masternodes are compensated by the Networks through Block rewards. These Block rewards form the basis of earning through operating masternodes.

How to run Masternodes

Now that we understand the functions of Masternodes, the next immediate thing we want to do is get right into it and start earning! But first, there are conditions to be met before meriting the status of being one.

Granted, anyone can run a Masternode, but not everyone is going to make the cut, whilst finding the tokens with MN availability is still difficult although the likes of Searched are trying to change that – https://searched.io/blockchain-marketing-agency/.

The main difference between a Masternode and other nodes is that one is required to HODL a given amount of assets of a given Network to run them. This ensures that Masternodes have a stake on the Network and cannot corrupt it as their held coins risk devaluation if they try to mess with it. The amounts required vary as well, depending on the cryptocurrency you invested in. Findmasternodes.io runs an up to date list of cryptocurrencies, corresponding asset amounts required for masternodes and percentages on returns on investment. For instance, to run a PayDay coin (PDX) Masternode as of this writing, one needs a minimum of 20,000 PDX with an annual return of 876.63%. The amounts required are held in special wallets for as long as a person wishes to run a node.

Since several Masternodes work together to create functional and robust networks, one needs a unique and stable IP address that other Masternodes will connect with. They also need to get hosting; this will cost a few dollars a month, nothing much compared to the rewards to be earned. Virtual Private Servers (VPS) are usually recommended as they give the owner of the Masternode full control of his own operations. Digital Ocean and Vultr are two of the widely used VPS. Once the above requirements are satisfied, one installs the Masternode application to begin earning. Most networks require that Masternodes remain open (online) 24/7 to make earnings. Some Networks pay out rewards multiple times a day while others make daily payouts. This depends strictly on protocols set out by the Networks’ code. While putting together a Masternode may be relatively easy, it may prove difficult for not-so-tech-savvy users. In such cases, there are services providers offer for a fee.

Most Networks select Masternodes randomly once they have the minimum assets moved to the holding wallets, yet others such as Exim Chain have members vote for masternodes. They do this by staking an amount equivalent to their conviction on a vote. After voting, all amounts collected are shared among the participants. Swarm Fund, on the other hand, allows Masternodes to vote on the budgetary allocation for tokens to invest in. Profits realized from investments are similarly shared, and it’s essential that anyone running a masternode understands how to manage profits with regards to cryptocurrency tax.

Running Masternodes presents a more risk-free model to earn from cryptocurrencies other than profits anticipated from price rise. However, the threshold amount to run one may not be very much favorable to small volume holders. Also, being rewarded in the Networks’ native token may mean significant loses if coin prices fall. Users should, therefore, be diligent in choosing the right cryptocurrency to act as a Masternode for.

Image Source: My Blockchain Coach

* The information in this article and the links provided are for general information purposes only and should not constitute any financial or investment advice. We advise you to do your own research or consult a professional before making financial decisions. Please acknowledge that we are not responsible for any loss caused by any information present on this website.
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