What Is A Masternode?
Masternode is simply a cryptocurrency full node or computer wallet that keeps the full copy of the blockchain in real-time, just like your have Bitcoin full nodes and is always up & running.
But masternodes are considerably different in their functionality than normal nodes.
They are different because they perform several other functions apart from just keeping the full blockchain and relaying blocks/transactions as a full node does in Bitcoin/Litcoin.
Some of the special functions that these nodes perform are:
Increasing privacy of transactions
Doing instant transactions
Participating in governance and voting
Enable budgeting and treasury system in cryptos
These masternodes are not standalone but they are always communicating with other such nodes to make a decentralized network and are often referred in short form as MN.
Note: Mostly the masternodes perform the tasks that I have listed above but it can slightly vary from cryptocurrency to cryptocurrency depending upon how masternodes have been implemented. But more or less they perform these functions in a cryptocurrency.
What Does It Take To Run A Masternode?
Just like full nodes in a cryptocurrency, masternodes can be run by anyone. However, there is an entry barrier in place to ensure that the system doesn’t get malicious. The entry barrier is what one needs to commit or collateralize certain units of that particular cryptocurrency to run a masternode.
This is done to ensure that a masternode owner doesn’t cheat or corrupt the system and the best of doing so is by putting this entry barrier where the master node operator has something at stake in the whole game.
So naturally, it becomes very less likely that a masternode operator will cheat because he has a stake in running the whole system and even if he chooses to do so he will be punished in the form of devaluation of their own HODLings.
Now that you have understood the concept of masternode, let us see what all things are required to set it up:
One needs a minimum amount of coins of that particular crypto. (For DASH MN you need 1000 DASH units and for PIVX MN you need 10,000 PIVX units) So this minimum number varies from crypto to crypto
One needs a VPS or server to host that wallet for 24 x 7
One needs a dedicated IP address for that
One needs some storage space to save the blockchain
These are the pretty much same requirements for any masternode cryptocurrency.
Now I know some you might be thinking that to meet all these above pre-requisites one needs to spend first, so then how will someone earn?
Absolutely correct! And this takes me to my next section of this write-up which gives further clarity on the topic.
How Are Masternodes Useful For Cryptocoin Investors?
Masternodes are very useful for crypto investors because of running a masternode you are incentivized. Consider it just like earning a monthly or weekly interest on your crypto holdings.
Different cryptocurrencies have different incentive models through which an MN operator can earn a decently monthly or weekly income. I call it smart passive income.
If you are invested in a cryptocurrency that allows you to run a masternode, you should definitely explore that option of earning.
Another thing to understand here is that you should choose the right currency for investment if you are solely investing for running a masternode. You should compare the percentage yield against the investment. In short, you should smartly calculate your ROI.
As of now, there are numerous cryptos out there in the market that allow you to run a masternode but not all of them are worth running because of meager incentives they provide.
I know the next thing that you would like me to talk about would be which cryptos to choose for running a masternode or some of you would also like to know how to identify if the crypto in which one has already invested allows running a masternode.
For people with such queries, there are few links where you can check if your crypto allows you to host an MN or not.