Masternodes in Cryptocurrency
Masternodes are a trending topic in the world of cryptocurrencies. There are several coins that have adopted a proof-of-stake system with so called masternodes. This was pioneered by the Dash cryptocurrency, several others have followed suide.
But what is a masternode, exactly?
What is a masternode?
Masternodes are nodes in the currencies network that fulfill a specific function beyond simply relaying transactions. In Dash’s case, they enable the InstantSend, PrivateSend, and the Dash Treasury System. Other crypto-currencies such as Crown plan to use master nodes to host decentralised apps amongst other things. This contrasts the system of i.e. Bitcoin, where a Node is simply a server relaying transactions.
Since Masternodes fulfill special functions for a cryptocurrencies network but do cost money and effort to operate, they are incentivized by gaining a share of the block rewards in their respective cryptocurrency. Hosting a Dash masternode generates Dash, a MUE masternode generates MUE. The yield varies primarily according to the masternode count and each coin might have different payout periods. PIVX pays out daily; Crown pays out several times a day. This makes masternodes a form to earn "passive income" on cryptocurrencies without having to run expensive mining equipment.
Anyone can run a Masternode. The objective is to have enough of them for decentralization so nobody controls an important fraction of Masternodes. However, there is one condition that usually has to be fulfilled: You have to stake a certain amount of coins in your masternode. Staking in this context means you lock up the coins for a fixed amount of time (think fixed-term deposit). The coins don't need to be in the Masternode, but they need to be kept in a certain way. If the owner moves or spends those coins, the Masternode stops working. This "proof of ownership" system serves to incentivize masternode operators and to prevent certain individuals to control a large share of the network by themselves.
What are the prerequesites?
To create a masternode, a user needs to lock in a specific amount of coin. (See below for more details). In the case of DASH, the creation of a master node requires to lock in 1,000 DASH in a local wallet. Users can then either setup a server to host the masternode or ask a service provider to do so on their behalf.
Which currencies have a masternode system?
Please see the below table for a quick overview of the available coins that offer masternode staking. I included the prices as of July 15th from Coinmarketcap. However, due to the very volatile price swings, you should re-check these prices by getting the current price of one unit of the currency of your choice from coinmarketcap.com, then multiplying by the number of units necessary to stake in a masternode.
|Currency||Symbol||Deposit||Dollar cost of Masternode at July 15th, 2017 (est.)|
|ChainCoin||CHC||1,000||~ 4.000 $|
|Crave||CRAVE||500||~ 1.000 $|
|Dash||DASH||1,000||~ 157.000 $|
|Diamond||DMD||10,000||~ 27000 $|
|InsaneCoin||INSN||50,000||~ 11.000 $|
|MonetaryUnit||MUE||500,000||~ 49.000 $|
|Neutron||NTRN||25,000||~ 3.525 $|
|Nem||XEM||3,000,000||~ 342.600 $|
|Pivx||PIVX||10,000||~ 16.000 $|
|Renos||RNS||30,000||~4. 000 $|
|Vcash||XVC||10,000||~ 2.300 $|
|XtraBytes||XBY||500,000||~ 6600 $|
These are the fundamentals of masternodes, the currencies that offer a masternode system as of now and the costs to set one up. If there is interest i might follow up with an article that illustrates the technical details of operating a masternode server. Please let me know in the comments. Have fun investing!