In the beginning, when the anonymity of cryptocurrency transactions was not yet widespread, the only method of verifying and authenticating operations was via mining. The existing mining seemed to reward only a select few in addition to not favoring complete anonymity. Cryptocurrency masternode came to light as a result of Dash’s innovation and left us where we are. Hence, the question, “What is a masternode?” becomes important.
What is a Masternode?
A masternode is also referred to as a bonded validator system. It is basically a server or a series of servers which support transactions on the blockchain network. It is not unusual to have some specific transactions or services which proof of work will fail to cater for, cryptocurrency masternode is available to ensure that such tasks get accomplished.
In essence, you can call a masternode a server of decentralized currency. If you have a computer which is running on a Virtual Private Server with the appropriate wallet and adequate amount of funds, you can beat your chest that you have a cryptocurrency masternode.
How does a cryptocurrency Masternode work?
The system can be likened to proof of stake whereby a particular amount of funds or cryptocurrency is ‘staked’ within the blockchain network. Now, with a masternode, you will be required to purchase a significant amount of that particular currency. The plan and reward package for different cryptocurrencies differs, however, it is a general rule that anyone operating a masternode will be compensated accordingly.
To simplify it, what is a masternode all about?
1. An operator for the masternode- a human being.
2. A collateral (lump sum) in form of cryptocurrency with a masternode functionality
3. A server which can be utilized in the decentralized system
A collateral is required so that the operators have an incentive to act according to the rules of the game. This is in order to prevent malicious activities.
Starting off with Masternodes
There are certain requirements you need to meet before you can operate a masternode. There’s the bond you should have, the computing power of your personal computer, video cards (if necessary), etc. We shall go over some of the requirements here.
Download the purse for the coin you plan to operate
Ideally, this is where it all begins. You should have a bandwidth with sufficient strength so as to avoid interruptions or intermittent failure. Sometimes, this process can take days and this is as a result of the synchronization required. Also, if it is a very popular coin with several transactions on it, the synchronization will take a while.
Get a dedicated IP from your Internet Service Provider
You will require a white IP- which the general public will use to connect to the masternode. This is actually not a core requirement, as you can use the local internet protocol, however, it fluctuates and this is not advisable. Also, the cost of the white IP is negligible and it is justified by the function.
Also, the call to your service provider should address whether or not the port has been blocked on the router. They can be asked to open a specific router to this aim.
Access the official site of your preferred cryptocurrency to download the instruction
Here, you will see the amount of coins you require in order to run the masternode. As earlier mentioned, there are different coin requirements and the payback period also varies. You can then purchase any amount of coins.
Change the required settings of your wallet
Unlike the erstwhile download, this is very easy to complete and shouldn’t take more than an hour. The instructions you downloaded from the cryptocurrency’s website will come in handy when setting up the preferences.
Run the Masternode
This is the last step. Do this and you can begin to earn money on the blockchain network.
Masternode operation or traditional mining methods?
Well, the future of cryptocurrency is in the ease of future transactions and the security which each method of mining offers. For these reasons, a cryptocurrency masternode seems ideal. Let’s explore other reasons for this conclusion.
Masternodes offer improved profitability
According to the information available on forums and other verified websites, people who deal in cryptocurrency masternode record profitability of about 200%. For others, the returns are significantly higher. And when you consider that the investment (apart from the bond which you get back), this is a really good deal.
Minimal investment required
Unlike conventional mining systems which incur exorbitant costs of electricity to run heavy machines which require sophisticated cooling systems, masternode is as simple as it gets. You can start up in your room with the appropriate computer.
Payback period of lump coin
Remember that you were asked to pay a huge amount of money which will be converted to coins before you can start. After you purchase the coins, they become frozen and you even have the opportunity to earn on them. What if you decide to quit before you even start making money? No problems! Just turn off the masternode and sell off the coins. You make your money back easily.
What are the risks involved with Masternode?
It is possible to consider investing in this masternode just because you read the first part of this article, however, you should consider the other sides of the coin. Here are some things you should factor in.
You should understand that not every coin is supported by the masternode technology. In fact, for now, only top coins are readily available. It is also wise to note that the coins which have acquired significant popularity will prove difficult to purchase (the lump sum)- amounting to hundred thousands of dollars sometimes. If you consider the profitability, you might be dissuaded.
The popularity and stock exchange affect your profit
Many people who deal in masternode are sometimes forced to purchase lesser known coins in the hopes that people will begin to transact on the network and they will have the opportunity to earn more. Sometimes, this plan fails to materialize and you’re forced to sell the coins. If there’s a drop in price, you lose more.
You Should Acquaint Yourself with Necessary Knowledge
This is the ultimate requirement. Consider yourself as a miner who is just using more sophisticated means and who has a significant investment in a particular coin. You might need to enlighten users of the coin on why and some of the benefits of the coin you’re trading.
Ultimately, you will still require more research into the inner workings of a masternode operator. This article, however, is a very good place to start. Petty questions such as “What is a masternode?” and “What do I need to get started?” have been dealt with thoroughly and you can get more information on your own.