A masternode is very emerging in the Blockchain world. What is a masternode and how does it work? Discover all the advantages and disadvantages on this page.
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The term masternode is becoming more and more common in the crypto world. As a crypto enthusiast or investor, it is important to know what masternodes are, what function they have and what they may help you.
Every computer that is connected to and interacts with the blockchain network is called a node (NL: node in a network). These can be miners, wallets or masternodes. Like miners and wallets, masternodes keep a full copy of the blockchain and exchange blocks of transactions with other nodes in the network.
Masternodes, however, go a step further. They facilitate special functions in the blockchain network:
- Increased privacy when performing cryptocurrency transactions
- Direct, instant transactions
- Decentralized governance
- Decentralized voting
Systems for budgeting & treasury
- Cloud computing
The masternodes thus ensure that a blockchain becomes much more than just a ledger for transactions. It differs per cryptocurrency which functions the masternodes facilitate, depending on which functionality has been implemented.
Why should I set up a masternode?
For a cryptocurrency it is therefore of added value that there are many masternodes online. This is why its owners are rewarded.
The reason that many run a masternode is therefore as an investment. Investing in this can provide a nice passive income. In addition, it is of course great to support the cryptocurrency you believe in by running a masternode.
What does it take to set up a masternode?
- In principle, anyone can set up a masternode. The following is required:
A collateral (collateral) in cryptocurrency, this differs per cryptocurrency.
For Dash: 1,000 DASH
For PivX: 10,000 PIVX
See https://masternodes.online for more cryptocurrencies.
- Your own computer or rented server that meets the technical requirements.
Enough storage space (usually at least 20 GB)
Fast internet connection
- A unique IP address (almost always ipv4)
Once the collateral has been collected and the computer or server is ready, the masternode should be installed. This requires some technical knowledge. Some do this themselves, and others choose to have this done by a third party, a hosting service. Read more about self-hosting vs masternode hosting service here.
If you want to set one up now, choose the detailed guide below that applies to you:
Set up and host yourself
- Dash masternode guide
- PivX masternode guide
What can I earn with a masternode?
You are probably reading this because as a cryptocurrency investor you want to know if there is anything to earn with a masternode. First read carefully what the risks are of investing in a masternode! Then here is a calculation example for PivX.
You have read a lot about PivX and think it is a strong project: you decide to set up a masternode. You can see at https://masternodes.online/currencies/PIVX/ what the ROI (Return On Investment) is for PivX: around 9.89% at the time of writing.
ROI stands for Return On Investment, and is equal to the annual return on the investment. You see the collateral is 10,000 PIVX. So in one year you will earn 9.89% * 10,000 PIVX = 989 PIVX.
You convert this into euros, with the current price of PIVX from crypto prices : €0.957 at time of writing.
Here we assume that you use a VPS (rented server) to run the masternode, and that it costs € 5.00 per month.
With an investment of 10,000 PIVX or $9,570, you can generate $73.87 per month in income.
The risks of investing in a masternode
Setting up a masternode is not without its risks. Before you decide to invest in a masternode, it is important to be aware of these risks.
The Risk of Loss of Value
As with any investment, there is a risk of loss of value. When you set up a masternode, you basically just purchase cryptocurrency – your collateral. Cryptocurrencies are traded on a free market, on exchanges. This means that the value depends on the supply and demand at that moment. If the price of your cryptocurrency falls, the value of your collateral also decreases.
Keep this in mind!
Security risks with masternodes
If you host the masternode on your own computer (instead of on a remote server), you need to secure your own computer and network. You open your home network to connections from outside. Your computer with your cryptocurrency is on this same network, so security is important! If you don’t know what you’re doing, get help from an expert or host your masternode on a remote server.
Here are some tips for choosing a masternode to mitigate the risks of losing value:
- Always do extensive research into the project!
(Do Your Own Research aka DYOR!)
- Talk to the project team members on Telegram, Discord or other communication platforms and ask any questions you may have.
- Check whether the project is liquid enough, in other words: is the daily traded volume high enough so that you can sell your profit without the price falling.
- Pay close attention to the ROI (Return On Investment). If it’s too low, it probably isn’t worth taking the risk of losing value.
- Also pay attention to a very high ROI! Some projects promise an ROI of > 50% or sometimes even > 100%. These have a higher risk.
These are often new low volume cryptocurrencies
or projects with very few masternodes.
The more active, the less 1 masternode earns on average!
Who invented masternodes?
The concept of masternodes was conceived by Evan Duffield as a system to support the “mixing” process used in DarkCoins’ DarkSend implementation, a way to promote privacy in cryptocurrency transactions. Later, Evan Duffield, Holger Schinzel and Fernance Gutierrez described the concept of masternodes in their InstantTX Dash Whitepaper in 2014.
DarkCoin, which later became Dash, is therefore the predecessor of the masternodes. Later, other projects copied this by basing their cryptocurrency on a fork of Dash, such as PivX, Crown and many others. There are over 500 cryptocurrencies that have implemented masternodes at the time of writing. Most of these have Dash code in their project, but there are also projects that have implemented the concept themselves.
Self-hosting vs Masternode hosting services
Before setting up a masternode, it is important to know your options regarding hosting and installation: on which computer will the software run?
You have three options:
- Install the masternode on your own computer.
- Install the masternode on a remote server.
- Using a masternode hosting service.
Each option has its pros and cons. Almost everyone chooses option 2 or 3.
Install the masternode on your own computer
- You have full control over the software and the hardware.
- You are not dependent on an external party.
- You do not have to pay them.
- You must have the technical knowledge for the installation.
- Your computer must be online 24/7, which entails power costs and degradation of your hardware.
- If there is a problem, you have to solve it yourself.
- You must secure your own computer and network.
- If you want to set up more than 1 masternode, you need to have access to multiple IP addresses and know how to set them up.
Install the masternode on a remote server
- Lower security risks because your masternode is disconnected from your own computer and network.
- You use professional hardware and the fast internet speed of a data center, so that your masternode is online 24/7.
- Your own computer no longer needs to be online, saving on electricity costs and degradation of your hardware.
- It is easy to rent multiple servers for multiple masternodes.
- Renting servers costs money (about 5 euros per server per month).
- You need technical knowledge for the installation and to manage the server.
Using a masternode hosting service
Because the process of installing and maintaining is too technical for many, companies have arisen that completely take this off your hands: hosting services. One of our partners is https://nodesupply.com.
These companies provide a server on which your masternode will run, be installed and fully maintained.
- Setting up is often fully automated, so you are online in minutes.
- You need zero technical knowledge, everything is done for you.
- Because external servers are used, you enjoy all the advantages of 2. Install the masternode on a remote server.
- You can often pay these companies in cryptocurrency.
- You will be supported throughout the process, any questions you may have will be answered.
- Due to the way masternodes are disconnected from your own wallet, you continue to manage your cryptocurrency and all income. The hosting service is only managed by the masternode, not your collateral.
- It is slightly more expensive than renting and installing the server yourself (monthly costs are often 6-10 euros).
- You are dependent on the hosting service, you (often) do not get access to the server yourself.
Ultimately, you will have to choose which of the above options is best for you.
Take a look through our installation guides to see if you have the necessary knowledge. Would you rather have everything done for you, and do you want to be online quickly? Check out our partner https://nodesupply.com, a high quality masternode hosting service.