Masternodes made simple
In the crypto space, you’ve probalby heard about those so called “Masternodes”. We are going to explain in this article the basic concepts of Masternodes and why it is worth the investment.
Different type of Nodes
A full Node, is a computer, connected to other nodes and constantly synchronising with the blockchain. A full node has a up to date copy of the entire blockchain and validates the new transactions, to ensure the blockchain is not corrupted.
A light Node is a node that does not have the copy of the blockchain, and do not validate the blockchain rules. Therefore it can accept fake transactions. Light nodes need, by lack of the blockchain, to query full nodes for operations like history or addresses balances.
A Miner, is a full node, which on top of that, solves a mathematical problem,(proof of work) to seal the newest transactions in a new block. When a miner finds the solution of the the problem, it broadcasts the new block to the blockchain. The block is then validated by the network and the miner gets it’s reward.
A Masternode is a full node, which uses Proof of Stake to create new blocks. The block creator is elected upon various rules. The rules depend on how is coded the coin. In general, the staking rewards are given according to a masternode wealth(depending on how many coins is a masternode staking) or a lottery between all the masternodes. Depending on the coins, Masternodes also have other functionnalities such as voting, shuffling transactions for an increase of privacy, or instant sending.
Proof of work (POW) vs Proof of stake (POS)
POW : A block is calculated by solving mathematical problems. Those problems are more and more difficult as the overall network processing power grows.
POS : The block solving difficulty depends on how many coins are staked on the masternode.
POW : The block rewards goes to the fastest computer which solved the mathematical problem. As all the miners are competing with each other, the demand in energy is always growing.
POS : The rewards depends on the coin. They can be fairly distributed, or determined by a lottery system.
Return on Investment
POW : The ROI can be very attractive but can be impacted by many factors such as price of electricity, price of computers and GPU, network difficulty and market prices. It got harder and harder to be profitable with mining.
POS : The ROI depends on various rules such as the amount of masternodes in the network, but the factors are less volatile. The long term ROI is usually much lower than POW but also less volatile. The ROI is directly impacted by the market value of the coin.
Masternodes as an investment
Besides participating to secure the blockchain, a Masternodes generates a passive income, with almost no investment. The only consequent investment is the minimum coins you will have to stake to be eligible to run a Masternode. Masternodes is the smart choice for wallet holders, to earn interests on sleeping coins.
Which Masternodes are worth investing in?
With many different coins, come many different rules and risks. In the safe side, the ROI is stable for the long term (like DASH or ZCOIN), and the coin is backed up by a solid team, and a proper project. In the risky side, the ROI can be outstanding, but as many coins, subject to hype, high volatility and high risk. There are lots of chances that few months after your investment, the value of the coin drops or the project vanishes magically.
Those lucrative types of nodes are a safe bet depending on the coin and does not require heavy upfront investment or maintenance. It is the best way to generate passive income while simply keeping your coins. A crypto investor should definitely spread rist and put a part of it’s crypto assets into Proof of Stake Coins.
Have a nice day and remember: