Masternode guide

Mar 24, 2022
8 min read

This blog post will cover:

  • What is a Masternode?
  • Masternode profitability
  • How to earn crypto with Masternodes?
  • Promising Masternodes
  • Disadvantages of Masternodes

Earlier, we have already learned about the nodes in the Crypto World and what types of nodes are there. In this article, we will find out more about Masternodes and see how you can earn crypto with them.

What is a Masternode?

Masternodes are types of nodes in a blockchain that are responsible for checking and approving transactions. The list of responsibilities also includes increasing network speed and user security. Masternodes are servers or computers with a static IP address. Prerequisites for work include a running wallet, full synchronization with the blockchain and round-the-clock activity. The full functionality of the Masternode depends on the type of cryptocurrency, but one of its main tasks is to verify transactions. In a blockchain, the system of Masternods is usually combined with PoS.

PoS literally means Proof-of-Stake. This is the method that provides the ability to create the next block in the blockchain which is exactly proportional to the specific part of owning coins from their total supply.
When this method is applied, the algorithm for generating the next block implies that the block is formed by the user account that has more coins on the balance. For example, a user who owns 1 percent of the total supply of coins on average will be able to generate about 1% of new blocks.
This method is considered to be an alternative to the traditional Proof-of-Work method. In the case of Proof-of-Work, the probability of generating the next block is higher for a user (miner), who has the most powerful computing mining software.

Owning the Masternode is more profitable than crypto mining and it is much easier to run the Masternode. Therefore, this is a fairly convenient option for users who want to earn crypto.
The Masternode is a specially configured and accessible crypto wallet with a coin balance that should be enough to participate in the network as a trustful node. The owner of the wallet can receive a reward for generating new blocks.

To start a Masternode, each project requires that you lock a certain number of coins on your wallet. The amount required may vary and depends on the project. Thus, despite the fact that the actual cost of the Masternode is low, the cost of locked up coins can be quite high.
At the beginning, you will need to configure it on VPS (Virtual Private Server), in order to have enough resources for it to work. At this moment, your work is almost done. The service is automatic, the network operates in strict accordance with the code. Even if the Masternode goes offline, sooner or later a reward will be received.

Masternode profitability

Masternode ownership is a method to earn cryptocurrency. This is an alternative to computing mining where the PoW algorithm is used.
Profit from owning a Masternode completely depends on the conditions of the selected project and the placed deposit. For example, owning a Masternode of popular cryptocurrencies (Dash, XEM) requires significant financial investments, but you can expect a stable profit of 10% of your deposit. Less known altcoins provide more favorable conditions. Initial investments can be several hundred dollars, and the percentage of profit is about 100%.
The revenue share and Masternode profitability depend on the specificity of a project, the activity of the development team, coin use cases. This is also good to know how long the coin has been trading on cryptocurrency exchanges.

To earn crypto using a Masternode, it’s very important to pick the right project. In total, there are 117 cryptocurrencies that support this method, and new ones will arise. You can track the profitability of the Masternode ownership on special sites:

Such services provide up-to-date information about the value of the token, calculate the return on investment and earnings from the ownership, taking into account cryptocurrency statistics.

How to earn crypto with Masternodes?

To choose the coin we suggest to pay attention to the following parameters:

  • Return on investment (ROI). It’s the approximate profitability of a particular Masternode.
  • MN WORTH. It’s the price of a particular Masternode, which is calculated according to the current price (current coin value) and required indicators (the required number of coins that should be in the wallet).

The following steps should be done in order to start making profit on Masternodes:

  • Selection of a dedicated server or VPS with a static IP-address.
  • Installation of the original crypto wallet for the chosen cryptocurrency, which should support the Masternode.
  • Synchronization with the blockchain network.
  • Setting up a crypto wallet in accordance with instructions which a person, who wants to run the Masternode of the selected cryptocurrency, needs to follow (here you will have to complete the most actions, the instructions for setting it up are published on the coin website).
  • Start the Masternode.
  • You can keep the coins earned as a reward or sell them on the crypto exchange.

Promising Masternodes

According to analysts, the most promising Masternodes in 2020 are:

  • Dash is the first cryptocurrency operating on the PoS algorithm. Developers allocate 45% to Masternode commissions.
  • PIVX is a fork of the Dash cryptocurrency, which happened in 2016. According to the consensus on cryptocurrency operations, 90% of all commission payments are used to pay for Masternodes, and 10% to developers.
  • ChainCoin is a cryptocurrency operating under the Proof-of-Stake protocol and 11 hashing algorithms. C-11 is a unique development of ChainСoin. CHC uses a network of Masterodes to ensure transaction anonymity. Users can withdraw their assets at any time. Masternode setup requires 1,000 Chaincoin (CHC) to be sent to the operator’s wallet, this is a form of Proof-of-Stake.
  • SMART is a decentralized economic system. 70% of the remuneration from the mined blocks goes to the implementation of the project; the remaining 30% goes to mining.
  • Zcoin is a decentralized digital cryptocurrency with a focus on anonymity and privacy. Cryptocurrency Zcoin (XZC) was founded in 2016 and based on the Zerocoin protocol. Mining Algorithm here is MTP (Merkle Tree Proof). MTP is considered an ASIC-robust algorithm. Zcoin uses both POW (Proof of Work) and Proof of Stake (POS) transaction confirmation algorithms. Users can send and receive coins without revealing which coins belong to them. The procedure guarantees the absence of information about user activity.

Disadvantages of Masternodes

Among the drawbacks are the following:

  • Riskiness. Most reliable cryptocurrency networks require a large amount of collateral. Spending thousands of dollars is risky, especially in conditions of tremendous volatility. Therefore, investors use services to purchase parts in Masternodes.
  • It’s hard to predict profits. Since income is paid in cryptocurrency, profits cannot be predicted. If the rate drops, both the rate of return on investments and the amount of collateral in terms of fiat money will decrease.

Nevertheless, this is an investment that can help people to make a profit. The projects-beginners provide higher prospects for profitability, but the risks of investments increase significantly, since the project may be unclaimed or not sufficiently prepared.

In this article we reviewed what a Masternode is, how to make profit with it, and what are the disadvantages of Masternodes. Since the Masternodes are responsible for the signature of the blocks and guarantee the decentralization of the network, investing in the Masternode actually means investing in the future of the coin. If a person decides to find a promising Masternode for a stable passive income, it is necessary to carefully review the project roadmap and check all available information about the cryptocurrency.

This article does not contain investment advice or recommendations. It has informational purposes only. Every investment and trading move involves risk. You are the only one responsible for making investment decisions.

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