Un master node or masternode, is a type of full node which is responsible for carrying out a series of certain tasks or services on the network blockchain to which it is connected. These nodes They can be executed by anyone, but for this you must possess a certain amount of cryptocurrency and retain them in a kind of contract.
In this way, these coins are used as a "guarantee" of the operations performed by the node. At the same time, The installation of a master node generally enables the person to be part of the governance or other important functions of the blockchain.
Who created the masternodes or master nodes?
The history of masternodes dates back to 2014, when the developer Evan Duffield He developed an idea that allowed him to add a second level in mining. This design was put into practice on a hard fork de Bitcoin who got the name of Xcode and which is currently known as Digital Cash (Dash).
In its implementation, one of the most valuable results was the reduction of commissions or fees. Another additional functionality that Duffield implemented through the master nodes was a decentralized governance system and a process of voting between the parties that gave rise to what we now know as the DAO. Another advance created by Duffield using this system was the treasury system, which allows the network to generate a budget from the rewards. All this in order to finance the ideas presented by the community for the improvement of the Dash network.
These early Duffield experiences with the concept of master nodes caught the attention of many developers, who saw the perfect opportunity to implement similar systems in their blockchain projects.
How does a masternode work?
The operation of a master node depends a lot on the implementation of its protocol in the blockchain where they are executed. But in general, a master node works through the protocol of Proof of Stake or Proof of Stake. This is because through the staking, the owner of the master node can enable the creation of said node. For example, in Dash the creation of a master node happens because the owner of said node has 1000 DASH at his disposal. These funds will be blocked as a guarantee of the operation of said node. In PivX Another cryptocurrency that also makes use of master nodes, the amount to be blocked amounts to 10.000 PIVX.
Of course, there are also master nodes that make use of the Proof of Work (PoW). An example of this type of master nodes using PoW can be seen in cryptocurrencies MPower.
Once the master node is active, it will execute the functions for which it is programmed. Again this depends on the blockchain where said node is executed. Among the most common features of master nodes is enabling instant or anonymous payments. They are also used as part of a decentralized governance system where node operators vote on development issues related to the blockchain in which they participate.
All these functions generate a reward that allows the operators of the master nodes to generate profits. In fact, rewards tend to be higher as participation in PoS or PoW mining increases.
Make money with a masternode?
Master nodes are also subject to investment, as they can provide interesting benefits. He ROI or Return On Investment, refers to the economic value generated as a result of carrying out different economic activities. With this data, we can measure the return we have obtained from an investment.
Knowing the ROI of the master nodes is of utmost importance, especially considering that their implementation requires a strong investment. For example, a Dash master node needs 1000 DASH to get up and running. At the current price, 1000 DASH is $ 50.000 USD. Hence the importance of evaluating the profitability of installing a master node for a given cryptocurrency. However there are masternodos for just a few hundred euros in other altcoins more unknown.
To calculate the ROI of a master node, the following factors must be taken into account:
- The price at which the coin was purchased.
- Block reward or incentive mechanism.
- The amount of MNs that are active.
- The monetary cost of hosting MN.
- The time necessary to host MN.
- Tax implications of MN revenues.
- The price at which the coins are sold.
- The final price at which the coin is sold.