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What is a Masternode and How Does It Work?

Torsten Hartmann

March 2, 2019

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In the cryptocurrency world there are a lot of ways of earning and making money. The most important thing is to choose the best way that suits you, according to the various risks and rewards ratio. One of the ways of earning digital currencies is using a Masternode. It’s a bit different from the other nodes comparing its functionality. Masternodes are full cryptocurrency nodes or computer wallet which are keeping copies of the blockhain in the actual time. They in a way implementing certain services that miners cannot achieve.

Masternodes perform various functions:

• Increase privacy of transactions
• Dealing with instant transactions
• Participating in governance and voting
• Enable budgeting and treasury system in cryptos

One of the first digital currencies which used Masternode in its protocol was Dash. Dash has two networks of masternodes, the first network of miners and the second network which works along the first one in order to achieve dispensed consensus on the blockhain. The two tiered systems secure that proof of work and proof of service correlate in the Dash’s network and keep it running properly.

Therefore Masternode is Dash’s prototype which was accepted by many other crypto currencies. This platform is intended to observe instant and anonymous transactions and now it is used by many other services.

How Do Masternodes Work?

Masternodes are based on staking a particular sum of a given currency inside the currencies network and they can be run by anyone. To start a Masternode you need to buy an amount of currency in question. A dash for Masternode requires a 1000 DASH, so at one point in time, when DASH was very expensive token, you’d need to drop a cool $763,000 on a masternode – a brand new Ferrari would have to wait. In other words you put a mortgage on your house and the next step is to pay back your cash. Download your currency wallet and use it to create a Masternode. Your computer is used as a server and it is incorporated into a many nodes supporting the blockchain.

Masternode does a number of functions, primary instant and anonymous payments as well as enabling decentralized governance system working within the blockhain. Masternodes always communicate with other nodes in order to make a decentralized network.

Masternodes share block rewards of 45 % among block chain miners as a compensation for its work and 10 % gets the blockchain’s treasury fund.

It is important to know that having a required sum of  particular currency for Masternode doesn’t mean that you can run one.

The Benefits of Masternodes

Simply said, the main benefit of Masternodes is earning a passive income. Users earn an additional parts of rewards for each completed block in a blockchain. Therefore investing in Masternode earlier than the coin is launched, you get an opportunity to gain a substantial profit.

Masternode task is protecting block chains from various attacks.

If we consider Dash, accumulating an amount of currency leads towards high-costs.So these high costs maintain the decentralization of a network and eliminates the chance that users can purchase a lot of currency in order to gain monopoly on the nodes.

Operation costs holds the operators sincere, comparing Bitcoin miners who may switch from one coin on its blockchain to the next based on profitability and operators try to keep their Masternodes. Everybody has to play by the rules of the certain blockchain. Operators are walking on the fence, among the high operation expenses and guaranteed investments refunds, so their best interest is to handle nodes correctly and safe with no malicious intentions. 

Masternode Pioneers: The Coins and their Uses

 Dash primary created Masternode to perform these tasks:

-InstaSend – Masternodes practically make instant transactions

-PrivateSend – Masternodes enable its users to create and receive anonymous payments

-Decentralized Governance – Masternodes support blockchain development

According to raise of cryptocurrencies and making new coins,a lot of developers  ‘borrowed’ the Dash’s model and use for their purpose.

Some of these coins and their Masternodes are listed further down.

Privacy

Privacy is trying to upgrade Dash’s transaction anonymity. PIVX was a part of DASH, but nowadays is creating crypto in an even higher level of confidentiality than its ‘master’. It is using personal custom platform of the Zerocoin protocol, the identical protocol use other privacy coins like Zcoin. Using PIVX its users change their standard coins into a zPIV tokens, which ensure them entirely anonymous transfers. There are also Zcoin and Monetary Unit using Masternodes for their private services.

Exchanges

Exscudo and Block Net are planning to use Masternodes for their decentralized exchanges. They will examine exchange transactions in order to ease digital currency trading as well as fiat money.

This kind of exchanges are in a conceptual phase at the moment.

Commerce and Marketplace Service

Syscoin as one of the famous decentralized marketplaces, has developed its marketplace on which you can buy and sell various items and products. Syscoin as well as other uses Masternode mechanism. Here you can make instant payments, sell your products, resell others’ stuff, send encrypted messages and other thing similar to Ebay. Masternode facilitates payments anonymously and instantly on the marketplace. From the crypto core wallet you can enter Syscoin marketplace.

Smart Contracts

Boscoin as they say for themselves is a self-evolving platform which includes Masternodes in its clever contracts concepts and its governing system for the Congress Network. Using Dash’s voting system Boscoin developers created Congress Network with the aim to upgrade governance and decision making  inside the network

To total Masternodes list  give this website a look.

Making the Case for Masternodes

Masternode application is pretty adjustable, it changes the  proof of work limitations and works a s light version of proof of stake systems.

This avoid the centralization of mining pools which are put in the proof of works networks and also use less energy. With Masternodes they gain stability and loyality larger refunds and can be used as miners’ control mechanism. Two Dash networks work in a way that the second tier network to observe the first network-proof of work.

This way they can block and reject unwanted blocks and if block miner is trying to manipulate the rewards.

To conclude, Masternodes possess a great option of earning money and high potential within blockchain circle of users so, they represent a refundable investment. It will be interesting to observe its development plans, intentions and concepts and being a part of the Masternode vision. It will be very interesting to see, what will the Masternodes offer to its users in the future.

 For a full comparison of DASH vs BTC – click here.