In the cryptocurrency market, there are seemingly endless ways of making money using new methods that no one has heard of. Letʼs add masternodes to that list.
Youʼve probably just finished getting a grasp of how regular nodes work for blockchains like Bitcoin, Ethereum, and Litecoin. Thankfully, masternodes are not a whole lot different, but they do add a twist to the way investors earn passive income with cryptocurrency.
Letʼs do a quick overview of how masternodes work, what they are, and if theyʼre worth investing in for passive income.
Masternodes Keep the Network Honest
To get a firm understanding of what masternodes are and how they work, letʼs dial this explanation all the way back to the start. Yes, thatʼs right, letʼs begin with blockchain.
Blockchains are decentralized ledgers – think of an accounting book or a spreadsheet. In contrast, traditional ledgers are kept by a centralized or single record keeper – think of the accountant and her book – she maintains the book and decides what goes into it. She can also choose to amend the ledger – an act that can constitute fraud or dishonesty, at the very least.
So, the relevance of blockchains being decentralized is that instead of having a single record keeper verifying the data that gets put into the ledger, there is a distributed network of nodes in place to make those decisions. Hereʼs the kicker – since the distributed network of record keepers is made up of many nodes all around the world, data that gets verified to go into the blockchain record must pass the node network with a majority consensus.
In this sense, blockchains are a very democratic way to come to a decision about truth without having to rely on single points of failure/authorities/middlemen. Where do masternodes fit into all of this?
Well, masternodes keep the network honest like regular nodes do, but they differ in a few major ways.
On networks like Bitcoin and Ethereum, anyone can mine the network and thus be a node. There is no minimum amount of BTC or ETH one needs in order to mine. Masternode coins, on the other hand, require investors to buy a minimum amount of coins as collateral. The purpose of this is to keep nodes honest – if you arerunning a masternode and engage in malicious activity, then your collateralized coins are taken from you.
Masternodes do more than just verify network activity. Dash, one of the cryptocurrency marketʼs biggest projects by market capitalization, uses a masternode network. Dash masternodes enable private sending functionalities on the network and also have governance rights. In contrast, miners on non-masternode networks donʼt have governance rights.
Masternodes have fixed ROI (Return On Investment) rates. Masternode ROI tends to differ significantly between coins – so DYOR (Do Your Own Research) about the differences of masternode returns before investing.
How Do Masternodes Work?
Becoming a masternode owner and operator may be challenging if you donʼt have any computer programming experience – but not to worry, there are several services available to help you out.
1. Determine which masternode coin you are interested in. To start with, here is a list that displays masternode coins and their ROI.
2. Research the collateral amount for the masternode coin you want to buy. For coins like Dash, the collateral amount to run a masternode is 1,000 DASH.
3. Buy the collateral amount for the number of masternodes you want to run. 4. Deposit your purchased coins in the masternode wallet provided by the project youʼve chosen.
5. Masternodes need to run 24/7. For most, that means setting the masternode wallet up on a reliable VPS. There are plenty of tutorials online, but this step differs greatly from coin to coin.
6. Voila! Your masternode is now fully operational and running on a VPS. Sit back and let the node do your work for you.
Are Masternodes Worth Investing in for Passive Income?
We all want to make money in our sleep, right? With masternodes, thatʼs a real possibility, but you have to be very careful in choosing a good project with plenty of activity on the network.
Something many masternode buyers fail to consider is that if there is no activity on the network to verify or facilitate, then what use is the masternode, and how will it generate returns?
For that reason alone, most masternode coins out there are a complete waste of money while a few stand out as great investments.
Dash, Horizen, Zcoin, and PIVX come to mind as top-tier projects with impressive potential and very generous ROI metrics. Unfortunately, buying a Dash masternode will set you back a pretty penny – $161,530 at the time of writing. However, with a 6.77% yearly ROI, youʼre doing far and away better holding a Dash masternode than holding traditional investments such as mutual funds.