A masternode is a special type of server in a blockchain network, used to improve the functionality and security of the network. Unlike standard nodes, which only verify transactions, masternodes provide additional functionality such as:
- Instate transactions (faster)
- Private transactions (improved confidentiality)
- Governance and voting for network updates
- Network data storage
These enhanced features are essential for blockchains such as Dash, Zcoin, or PIVX, which use masternodes to bring extra value to their users.
How does a masternode work?
A masternode requires a set amount of cryptocurrency to function. This is used as a form of ‘collateral’ to support the network and is called collateral. Here are the main operational steps:
- Initial conditions
To run a masternode you must hold a certain amount of project-specific cryptocurrency. For example, in the Dash network, you need 1,000 DASH.
- Setting up the server
The masternode needs to be installed on a dedicated server (usually a VPS server). Simple setup can be done even by beginners using online guides.
- Network connection
Once you configure the masternode, it joins the blockchain network. In return, you receive rewards for supporting and maintaining it.
Benefits of a masternode
Masternodes are attractive to many investors because of the unique benefits they offer. Here’s why it’s worth considering this option:
- Stable passive income
Get rewarded in cryptocurrency for your contribution to the network. Rewards vary by blockchain, but many offer competitive returns.
- Support the network
By running a masternode, you help keep the blockchain safe and stable.
- Long-term capitalization
Owning the cryptocurrencies needed for masternodes can be a long-term investment if their value increases.
- Improved confidentiality
Many masternode blockchains offer advanced privacy features, making them attractive to users.
Risks associated with a masternode
While masternodes can bring significant benefits, it’s important to also be aware of the potential risks:
- Cryptocurrency market volatility
The value of cryptocurrencies used as collateral can fluctuate significantly.
- Initial capital requirement
The amount of cryptocurrency required to start a masternode can be substantial.
- Moderate technical requirements
While simplified solutions are available, those who want complete independence need to allocate time to learn the technological setup.
Examples of popular projects
If you’re interested in getting started, here are some well-known networks using masternodes:
1. Dash
One of the first projects to implement the masternode concept. It has a large community and attractive rewards.
2. PIVX
Offers advanced private transactions and a flexible rewards model.
3. Zcoin (now Firo)
Shines with its privacy-focused initiatives.
4. Horizen
Expands masternode functionality for decentralized applications.
Whichever cryptocurrency you’re interested in, up-to-date prices and developments are available on our specialized cryptocurrency price list page.