As you continue learning about the cryptocurrency industry, with each new layer peeled off comes new sets of terminology. Today we’re uncovering what is a masternode in cryptocurrency to assist you in widening your crypto knowledge, and in the process your horizons too.
What Is A Node?
Before we get into masternodes, let us cover nodes first. Nodes are essentially computers that connect and build up the blockchain network. Nodes are responsible for maintaining the network, through tasks like receiving transactions, recording them, validating them, and then broadcasting the data to all the other nodes on the network. All nodes are connected to each other through parameters (certain rules).
There are technically two types of nodes, a full node and a lightweight node. Lightweight nodes operate at a faster rate as they only download the header data of each transaction as opposed to the full transaction. Full nodes on the other hand download all the information, and are responsible for confirming all transactions within the network.
What Is A Masternode In Cryptocurrency?
A masternode, also referred to as MN, takes on the functioning of a full node only with more responsibilities. They are essentially the backbone of the blockchain network, alleviating network congestion and long processing times. While they download and communicate transaction data across the network their role might differ slightly from one cryptocurrency network to the next, in general they are also responsible for:
- Executing intranet transactions
- Engaging in voting and governance activities
- Increasing the privacy of transactions
- Enabling budgeting and treasury system
Anyone can become a node or masternode operator, however in order to ensure the integrity of the network there are a few “entry requirements”. These requirements ensure that the operator has a stake in the network, which can be held as collateral should the node go rogue. Here are a few requirements which are quite standard across the board:
- A minimum number of coins in that particular crypto staked in a wallet, i.e. you need 1000 DASH for a DASH masternode. The minimum amount varies from crypto to crypto.
- A dedicated IP address
- A VPS or server to host that wallet 24/7
- Storage space to save the blockchain
Masternodes are held responsible for their actions through the stake of coins. If the staked coins are removed from the assigned wallet the masternode will be deactivated, or if the masternode engages in any fraudulent or illicit activity, the collateral coins will be taken. The masternode will also be removed from the network should it be inactive for longer than an hour.
The Benefits Of Running A Masternode
As indicated earlier in this article, running a masternode can be financially beneficial, however there are several other benefits to running a masternode.
Masternodes receive governance rights and the power to vote in decisions. They are active participants when it comes to proposals and voting concerning the network.
Masternodes are able to earn predictable returns unlike regular crypto investors as they are rewarded for their contribution to maintaining the network. Should they wish, users are able to bypass the volatility of investing in the cryptocurrency and instead earn steady returns by operating a masternode.
Aside from the incentive pay of maintaining the network, masternodes can also tap into various other income earning opportunities. Masternodes are also capable of performing instant transactions (also known as “instantSend”) as well as private transactions (known as “PrivateSend”).
Masternode Introduction Complete
That concludes our introduction to what is a masternode in cryptocurrency. It’s also worth mentioning that the more masternodes there are on a network, the safer the network is. While there are profits to be made from operating a masternode, as with most things in life there is also capital required in order to set one up. If you’re looking to operate your own masternode ensure you know all the requirements and conduct your own research beforehand.