Reading time for the article: 10 minutes Masternodes can be a lucrative investment. At the same time, they are always a difficult topic when it comes to serious processing. Because there are a lot of dubious projects, especially with cryptocurrencies that use this technology, and even if you have filtered out the worst candidates, many serious projects still carry a high risk. In many cases even higher than other cryptocurrencies, so our guide tries to build a bridge. The first part is dedicated to all those interested in a compact explanation of what a masternode is and how it works. The second part would like to give the readers insights and also a checklist to help them to protect themselves from dubious projects. Finally, we will deal with service providers who enable the operation of a masternode via hosting or pool.
What is a masternode?
A masternode is a network node which, in addition to conventional tasks, also performs special tasks within the network of the respective cryptocurrency. The operator is rewarded with cryptocurrency for operating the masternode and completing these tasks. The tasks can include: anonymizing transactions, executing instant transactions, exercising voting rights in the network, monitoring the network itself, a server is required to operate the masternode, usually a relatively small VPS is sufficient for this. Alternatively, there are a number of providers who take over the hosting for a fee and thus save a lot of work. In addition, you need a certain amount of the respective crypto currency and must hold this deposit permanently so that your own node is also qualified as a masternode. If you can’t afford the necessary coins, you can go to a masternode pool with a small deposit, so owning a deposit – mostly acquired through purchase, in some cases through mining – is always associated with operation. The reward itself comes from the so-called block reward, which the masternode operators share with the miners in a fixed ratio. The reward can be different depending on the cryptocurrency.
Often, the reward that the operator receives is viewed in the context of the contribution made. Therefore, the term “ROI” is often used, which means “return on investment”. Similar to a return on investment, a percentage is determined which indicates how much money the operator receives per year. This yield can also be determined per day, week or month and sometimes fluctuates extremely, although the percentage value is mostly fixed. These fluctuations are due, on the one hand, to the fact that the respective cryptocurrency is subject to price fluctuations against Bitcoin and the US dollar, if at all can be traded directly for dollars or euros. In addition, the block reward for most cryptocurrencies changes and is reduced again and again over the years. In addition to the block reward, the percentage reward is also reduced in some cases, because the contribution made has to be topped up more and more (tiered masternode). Most serious projects have a rate that remains stable for a long time, but does not generate huge sums of money. A Dash Masternode costs around 66,000 US dollars (as of October 4th, 2020) and offers an annual ROI of 5.64%.
Difference to Proof of Stake
As can be seen from these examples, masternode technology must be distinguished from “proof of stake”. A deposit must also be held here, but it is not primarily about verifying transactions. In fact, Proof of Work, Proof of Stake and Masternodes are not mutually exclusive. It is often the case that miners and masternode operators share the block reward in a certain ratio. In addition to the special tasks, a masternode also handles general ones. These are the same tasks that normal network nodes perform. This primarily includes the distribution, storage and dissemination of the network itself. The miners verify the transactions, the nodes distribute them over the network. Without sufficient distribution through different nodes – preferably as many as possible – the decentralized character of the network is lost . All cryptocurrencies that do not use masternode technology are ultimately based on the voluntary use of the operator. Masternodes should therefore make a contribution to making the respective cryptocurrency more secure and ensuring that it scales better.
Masternode checklist – separate the wheat from the chaff
So that you can avoid some of the problems that can arise when choosing a Masternode Coin, we would like to summarize a few important points. The list is not exhaustive and you should add where your individual situation calls for it – just make sure who the developer or developers are. Fraudsters are often newcomers to the relevant forums and remain anonymous. There are also anonymous developers who mean well (see Satoshi Nakamoto), but caution should always be exercised; if a premine is put up for auction, that is a bad sign. Many young projects take months to get the money they need, or they first apply to smaller exchanges. Community donations are also quite common. It is possible that the anonymous developers enrich themselves at the auctions and also manipulate them. A premine also means that the developer can operate a huge number of masternodes. It’s not decentralized. He also collects huge sums of money in rewards. He retains a monopoly. A premine should be low or reasonable, it is not fundamentally bad. The highest possible ROI is no guarantee of success. Many established projects have an ROI below 25% pa, and even that is still very high when you compare it to other investments. If a masternode coin is already listed on exchanges, then do research on the market data. Where is it listed, how high is the market capitalized, what volume will it be? How is the project set up on social media? There is nothing wrong with offering a Discord Channel. However, a healthy community can always be reached on multiple channels, even if not always equally active. Watch out for functioning websites. Scammers build simple mockups so that the project at least appears to be legitimate, if you can: browse the code! Errors and inconsistencies cannot be hidden there. Every project should be available on GitHub. If this is not the case, extreme caution should be exercised. As with all other investments, the following applies here too: if in doubt, always consult a professional investment advisor.
Anyone who can afford to buy enough coins from a cryptocurrency is faced with the problem of hosting a masternode themselves. This will not be a problem for tech-savvy users, but you have to make regular maintenance work. You also have to pay for the server yourself. If you want to save yourself the trouble or are not able to host yourself at all, you can switch directly to a provider who will take over the work completely. Because the providers specialize in this area and bundle resources, they are in some cases hardly more expensive than renting a VPS.
Host a masternode yourself
A VPS is a small, virtual server that you usually rent from a provider. The actual masternode is operated on it. Renting makes sense because, for example, you need a static IP to operate the masternode. From a technical point of view, the VPS is thus the vital component if you want to operate a masternode yourself. We recommend packages that offer the following: 2 CPU cores, 2 GB RAM, 3 TB bandwidth, min 40 GB SSD (more if the network is older) Opinions differ on the choice of operating system. Linux is generally recommended because it is the best system for running servers. Which distribution is a matter of personal taste. Linux is also available for free, but it can be problematic if you have no knowledge or previous experience with Linux or Windows Server. Because in addition to the configuration at the start of the node, updates must also be installed at some point. The configuration of the masternode takes place at two ends, once on the VPS and once in a configuration file for the wallet.
Allnodes is a provider based in the USA. In addition to a wide range of cryptocurrencies, Allnodes also offers a staking service in addition to hosting masternodes, but this is still limited to the Pivx cryptocurrency. Users can only manage their account in credit. To do this, you charge it with at least 10 US dollars or more. Then you can host one or more masternodes and Allnodes also provides step-by-step instructions for this. Even beginners can get started relatively easily, but have to take care of the self-custody of the coins. The service provider offers the following options: Hosting of Dash, NEM, Divi, Horizen, Energie, Zcoin, Syscoin, PIVX, Stakenet, Wagerr, Blocknet , Polis, NIX, Phore, Crown, ION and GINcoin. Masternode hosting costs between 2.50 – 5.00 US dollars when paid monthly. Only NEM and Horizen go beyond the scope at 20 and 10 US dollars. Paying directly for one year reduces the costs. Payment can be made with PayPal, credit card or Alipay. Cryptocurrencies are also accepted via coinpayments. Therefore, you can pay the cost of your masternode directly from the rewards, for example, without having to change into euros or dollars beforehand. If our article was able to help you, we look forward to your support by booking Allnodes via our partner link. This will not incur any additional costs, but we will receive a commission.
If you don’t have the money to buy enough coins for a masternode, you can buy a fraction that would be needed to operate and thus go to a pool. There he will be rewarded proportionally for the contribution made. This system makes it possible to generate passive income with relatively little effort. If you compare the costs of investing in an established cryptocurrency, it quickly becomes clear why many users rely on a pool. The disadvantage of the pool is that you give up control of your coins. Because you pay this in. This shows a high level of trust in the provider. If this has lost data, suffers from a hack or simply disappears, then you can no longer get your money.
Earn Bitcoin with Nodepools
Nodepools is a service that lets its customers invest proportionally in masternodes. This means that you can generate passive income with little capital, but you also have to trust the provider. The company behind Nodepools is based in Georgia and you also register with Nodepools by providing your name and address. A special feature is that you are not paid out in the coins you have invested in, but rather you get Bitcoin back in return. You can deposit either in the crypto currency you want to invest in or in Bitcoin. If you opt for the latter, you will incur a fee for the exchange business. Nodepools also offers: An investment must be at least 50 US dollars. Investments in Dash, PIVX, Zcoin, Merebel, SafeInsure, SafeCapital and MalwareChain are offered. The provider charges a fee of 20 percent, which he deducts from the income. The return can be easily calculated on the website. No minimum term for the investment. If our article was able to help you, we look forward to your support by using Nodepools Book via our partner link. This will not incur any additional costs, but we will receive a commission.