There are several ways to make money in the cryptosphere. To begin with, you can buy and sell digital currencies for a profit through an exchange such as Coinbase. Secondly, you can run a Masternode.

Perhaps you may have heard crypto enthusiasts mention the term Masternode severally, and all this time you have been wondering what it is or how it works. Worry no more, in this post we shall cover everything you need to know about masternodes.

So, what is a Masternode?

A node can simply be understood as a computer that plays a part in ensuring the integrity of a coin network. The crypto space is not only decentralized but also distributed; therefore it functions by several people running nodes from different parts of the world. That said, you require a full node to host a copy of the Blockchain (coin’s ledger) and thus support the network.

A Masternode is a crypto full node (computer wallet) that supports the network by hosting an entire copy of the coin’s ledger in real time. In return, the Masternode will receive crypto coins as a reward. It is a great alternative to mining.

Understanding the Masternode

To enable you understand Masternodes further, let’s explore the different kinds of Blockchain in existence, and discover which one can run a Masternode.

There are two common types of Blockchain out there, namely:

  • POW (proof of work)
  • POS (proof of stake)

Each Blockchain has its own unique mechanism through which it process transactions to enable Blockchain functions.

POW Blockchains (Bitcoin is under this category) are supported by ‘miners’. They enable transactions through ‘mining’ of Blocks that are then finally added onto the Blockchain. They attain that by use of rigs.

Think of rigs as computers that do the processing of data at very high speeds and essentially guessing answers to puzzles. The rig that gets the correct answer gets rewarded. However, the main challenge with POW is its high consumption of energy.

This has triggered a shift to PoS as an alternative. POS Blockchain is supported by Masternodes. As we earlier mentioned, Masternodes are computers that enable processing of transactions within a Blockchain and in return earn a reward from the blocks created. They operate under a system that is collateral-based to guarantee the provision of services that are genuine. They act as the Blockchain network backbone or if you like as a bonded validation system.

Bitcoin and Dash were the first cryptocurrencies to adopt the Masternode model.

Why run a Masternode?

Besides the coin rewards that you get from running a Masternode, here are more reasons why you should consider a Masternode:

  • It increases the privacy of the transactions
  • It enables instant transactions
  • It allows the user to take part in governance as well as voting
  • It enables the treasury and budgeting system in cryptocurrencies.

While all Masternodes can do the above tasks, performance may slightly vary from one digital asset to the other based on how a Masternode has been implemented in a particular cryptocurrency.

So, how much can you make from running a Masternode?

The masternode enables you to earn some passive income from participating in network maintenance functions. However, there is no one-size-fits-all response on how much you can earn. Generally, it would depend on the following factors:

  • The coin then you select to invest in
  • The protocol that facilitates the Masternodes per coin
  • The rise in the eventual value of a coin into the future.

For instance, running a Masternode for Dash is likely to earn you a reward of about 45%, while miners get 55% which is split to all Masternodes. According to the Dash website that translates to 2 Dash every week. Per year, you end up with 10% for your 1,000 Dash, all factors held constant. That’s a pretty good deal.

How to run a Masternode

The Hosting of a masternode requires a server with an unlimited internet connection. You may want to consider a Self-Managed VPS platform with support for backup and easy to use interface. The other hurdle you need to hit here is the requirement of a high minimum operational coin balance attached to your wallet. For Dash, you require 1,000 DASH to start off. Once you download and integrate your wallet with the minimum amount, you are good to go.

Here is a step by guide to set up a Masternode:

  1. Purchase 10,010 coins from an exchange (buy slightly more, that is to cover your transacting fee from the exchange to your wallet).

  2. Install a desktop wallet on the PC and harmonize it with the Blockchain. Some wallets may allow you to download the data as separate files that allows you to speed up synchronization.

  3. Mail the coins to the wallet.

  4. Setup an address in your node wallet and remit the coins to your node address. This step allows you to obtain private keys and more information required for the setup procedure.

  5. Now, Set-up your node. You may use a personal server at your home or office, as well as get services from a virtual private server (VPS) from data-centers. Two VPS providers to consider are Vultr and Digital Ocean.

  6. Upon building installing and configuring nodes to your wallets, start your server. Start of the nodes daemon to allow synchronization with the Blockchain.

  7. Now Set-up your Masternode on the desktop wallet and you can start it up.

  8. Your running node will now start earning you the rewards.

Cryptos that have Masternodes

Currently, numerous projects have deployed Masternodes within their networks. They include:

  • Dash (DASH)
  • Bata (BTA)
  • Crown (CRW)
  • ChainCoin (CHC)
  • Vcash (XVC)
  • ION (ION)
  • Monetary Unit (MUE)
  • XtraBytes (XBY)
  • Diamond (DMD)

A comprehensive list of projects with Masternodes can be accessed here.

Bonus tip

Masternode systems investments are just as risky as any other business. An investor should undertake due diligence when making the critical decisions. Some key aspects to evaluate include but not limited to:

  • The utility of the coin, besides being a masternode.
  • Consider the coin demand before that of the masternode operators.
  • The minimum coinage amount before the operation
  • Be sure about the actual reward system.
  • Probable block reward changes in the future as well as if the tokens can buy products.
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