What is a Masternode?

A masternode is a computing device responsible for verifying transactions on the blockchain. Its holder receives cryptocurrency rewards in exchange for the task performed. Let’s explore how this device works, its advantages, and its potential profitability.

Masternode, What Is It?

Literally meaning master node, the Masternode is the main node of a network that validates transactions on a Proof-of-Stake blockchain. Unlike Proof-of-Work, masternodes do not produce blocks but simply verify the validity and legitimacy of transactions posted by other nodes. Masternode holders are rewarded with crypto tokens for contributing to the security of the blockchain network.

Understanding Masternodes in More Detail

Let’s delve deeper into how Masternodes work.

How Does a Masternode Work?

The operation of a masternode varies from one blockchain to another. However, it has characteristics common to all blockchains.

• Proof-of-Stake System: Masternodes only operate on proof-of-stake. While in a proof-of-work system, all actors have a complete copy of the blockchain, this is not the case in proof-of-stake. Only masternodes have one to verify and validate transactions.
• Rewards: Transactions then pass through the masternode for validation. The node holder receives commissions in the form of the network’s native cryptocurrency. This is the counterpart of the technical and financial effort provided by the validator.
• Other Functions of Masternodes: They can also grant voting rights on important decisions related to network governance or manage additional network features, such as Dash’s “PrivateSend” tool, which anonymizes transactions.

Creating a Central Node, How Does It Work?

To create a masternode, i.e., a central node, the following prerequisites are necessary:

• Possess a Certain Number of Native Tokens: To become a masternode holder, a certain quantity of crypto tokens must be staked as collateral. This ensures that only those most involved in the project participate in the transaction validation process, thereby deterring malicious behavior.
• Hold the Project’s Wallet: To run a central node, download the project’s wallet and sync it with the blockchain. Then transfer your crypto tokens to it by creating a special node address.
• Host Your Masternode on a Dedicated Server: It must run 24/7; otherwise, you will have to keep your computer running permanently, risking penalties in case of power outages.

As you may have noticed, the methods for creating a central node can vary slightly from one blockchain to another. On the DASH network, at least 1000 DASH is required to create a masternode, and on Ethereum, at least 32 ETH.

How Much Money Can You Earn by Running a Central Node?

The amount you can earn by running a central node depends on the project and other factors. Note that not all Proof-of-Stake blockchains offer the same profitability. Additionally, the fluctuation of token prices (growth or decline) that you stake significantly impacts the profitability of your activity.

The return on investment also depends on the project’s future. You will obviously earn more from a successful project than from one struggling to stay afloat. Be sure to analyze the blockchain’s future to avoid falling into the trap of a huge gain promise.

Finally, the amount you can earn also depends on the period during which you immobilize your tokens to run a central node. Indeed, the longer the duration, the higher the promised yield. But in this case, you block part of your assets, potentially preventing their use for other projects.

What Are the Advantages of Having a Masternode?

Having a masternode offers various advantages:

• Contribute to the security and proper functioning of the network;
• Earn income for the tasks performed;
• Participate in decisions related to network governance;
• Access additional features such as transaction privacy and speed.

Conclusion

Masternodes are at the core of Proof-of-Stake blockchain operations. They provide an excellent alternative to cryptocurrency mining, known for its disastrous environmental impact. If you want to run a masternode to generate income, choose the blockchain wisely. Thorough research is therefore necessary to ensure minimum profitability.

La Rédaction C.

L'équipe éditoriale de Cointribune unit ses voix pour s’exprimer sur des thématiques propres aux cryptomonnaies, à l'investissement, au métaverse et aux NFT, tout en s’efforçant de répondre au mieux à vos interrogations.