What is A Masternode? | Guide To Cryptocurrency Masternodes

by | May 25, 2018 | Blockchain, Cryptocurrency

masternode | cryptocurrency masternode | dash masternode | what is crytocurrency masternode

What is Cryptocurrency Masternode?- An Introductory Guide On Masternodes

You can make gigantic profits in cryptosphere by properly adjusting your risk/reward ratio with the option which works best in your favour. Masternode is one such option.

Also, known by the name of “Bonded Validator Systems”, masternodes refers to a series of servers which serve as the backing of a blockchain’s network by enabling certain specific services which otherwise cannot be accomplished by the miners under the Proof-of-Work (POW) mechanism.

The first cryptocurrency which was implemented in the masternode model was Dash. Thus, a second-tier masternode network exist simultaneously with the first-tier network of miners in the proof of service algorithm of Dash. This assists the miners in achieving a distributed consensus on the blockchain by ensuring that both Proof-of-Work and Proof-of-Service take up a synergetic maintenance of Dash’s network. This mechanism has already found wide-spread acceptance amongst a bevy of cryptocurrencies. Thus, what was initially perceived to oversee anonymous instant transactions is currently being implemented for an array of other services.

Working Mechanism Of Masternodes

The masternodes rely on venturing in a certain amount of crypto within the currency’s network much like the Proof-of-Stake mechanism. You shall first be required to purchase a substantial amount of the cryptocurrency for establishing a masternode. Once you have made the arrangement for the adequate finance, it’s time to earn your cash back by downloading the core wallet of the cryptocurrency and using it for creation of a masternode. The core wallet shall integrate with your computer like a node supporting blockchain once the same has been set up as a server. A third party might also be given the contract of running the server for the operators.

The masternode can accommodate a unique series of functions like anonymous or instant payments once it becomes live. They also pave the way for a decentralized governance system allowing node operators to vote on significant developments taking shape within the blockchain.

Masternodes share 45% of the block rewards along with the blockchain’s miners as compensation for the troubles taken by them. The remaining 10% is redirected to the blockchain’s treasury fund. Operators can be in charge of voting on the proposals and allocation of the same for improvement of the network. It is imperative to note here that simply being in possession of the requisite crypto for a masternode is not sufficient for running the same. Every currency comes with its own set of guidelines pertaining to maintenance of a masternode. These conditions need to be complied with at all times since moving it from the staking position can cause the masternode to cease its operation.

Advantages Of Masternodes

Blockchains are buffered against network attacks by masternodes in the same vein as that of the traditional Proof-of-Stake (POS) algorithms. However, it might be extremely expensive to accumulate the desired cryptocurrency quantum which can suffice the creation of a masternode just like Dash. Nonetheless, this expense aids in maintaining the decentralization of the network since an ungodly amount shall be required for purchasing the requisite level of currency to gain monopoly over its nodes. This is something which cannot be afforded by even the average or above average investors.

The operation expense maintains the honesty of operators as they are incentivised to maintain their masternodes properly unlike the Bitcoin miners who are easily tempted to switch from one coin on the blockchain to the other based on the ultimate profitability. The sky-high initial investment takes up the role of a collateral. The operators have to adhere to the blockchain’s rules if they wish for their investment to pay off. An operator should work in the best interest of his node by taking the right call between promising return and high operation costs without letting his malicious intent take over.

Pioneer Masternode Coins And Their Usage

Dash was developed originally for implementing the following services via masternode:

  • PrivateSend – Users can engage in anonymous sending and receiving of payments coupled with the Masternodes.
  • InstaSend – Nearly instantaneous transactions can be accommodated through masternodes.
  • Decentralized Governance – Masternodes vote on financial and technological developments for the blockchain.

With more and more coins entering the cryptosphere, developers are applying bits and pieces of the Dash’s model into intuitive use cases. We will now take a look at some of these coins along with their masternode uses.

  • Exchanges – Masternodes can be utilised by cryptoassets such as Exscudo and Block Net for rendering support to their decentralized exchanges. Transactions shall be overseen by the masternodes for facilitating crypto trading and offering fiat currency gateways. Since no live platform has yet been made available for consumer usage, some exchanges are still in their theoretical development stages.
  • Privacy – The precedent of transaction anonymity set by DASH can be further improved by privacy coins. PIVX is one such crypto which incubated out of a DASH fork but is taking the game for anonymity a notch higher than its parent currency. PIVX makes use of its exclusive version of the Zerocoin protocol which is similar to the one used by other privacy coins like Zcoin. Users can convert their standard PIVX coin holdings into zPIV tokens using PIVX. The identity of users is dissociated completely from the transaction ID while sending zPIV tokens which ensure complete anonymity of verifiable asset transfer via PIVX masternodes. The masternodes are also utilized by Monetary Unit and ZCoin for their exclusive privacy functions.
  • Smart Contracts – BOScoin adopts the masternode governing system for being used in its Congress Network and also integrates the same for its smart contracts. The developers had taken a cue from the voting mechanism of DASH’s masternode to come up with Congress Network which can improve decision making and governance within the network. The masternode operators are provided with voting privileges under this system for deciding on the blockchain revenue allocation as well as policy and code modifications.
  • Marketplace service and Commerce – The masternode functionality is applied by Syscoin to its decentralized marketplace. Its users can access the blockchain alternative of peer-run commerce websites such as eBay. Masternodes will be finally responsible for facilitating of instant and anonymous payments on the marketplace. They can even access the Syscoin marketplace using the currency’s core wallet.

Conclusion

The application of Masternode is extremely flexible as it behaves like a buffed-up version of Proof-of-Stake systems by compensation for Proof-of-Work’s limitations. It avoids de-facto centralization mining pools just like Proof-of-Stake and consumes much less energy compared to the Proof-of-work model. Enhanced network loyalty and stability is promised by masternodes which comes as a significant improvement since high initial investment costs and larger dividends is known to diminish the lure of investments among operators who often tend to abandon their position in search of greener pastures.

They can also be of great help in preventing miners from stepping out of the line. Masternodes present on the second-tier network of Dash’s model monitor the first-tier proof of work network. This in turn provides the masternodes with full control over rejecting blocks if the miner tries to manipulate block rewards or use an outdated version of Dash. Masternodes house serious potential to accelerate distributive consensus and democratize decision making within the blockchain communities although their lasting application is still speculative. They surely are a promising investment opportunity if adequate capital can be accumulated.

KryptoMoney.com publishes latest news and updates about Bitcoin, Blockchain Technology, Cryptocurrencies and upcoming ICO’s.

Rohit Kukreja

Rohit Kukreja is a Commerce graduate with Financial Markets expertise involving Stocks, Forex, Futures & Options Market and now Bitcoins & Cryptocurrency Markets. Blockchain Enthusiast but not a techie, Rohit is an active member of various Blockchain & Crypto communities all over India.

Get Latest Bitcoin and Crypto News

bitcoin news telegram channel | cryptocurrency news telegram channel | ico news telegramc Bitcoin & Altcoin Futures

Comments

comments

Get latest Bitcoin & Cryoptocurrency News

 

Subscribe to our newsletters to get latest Bitcoin and Cryptocurrency news.

Thank you !