What are masternodes?
Masternodes which are also known as ‘bonded validator systems’ are nothing but a series of servers that support a blockchain’s decentralized network. It enables many unique functions which can neither be accomplished by simple nodes nor by the miners under proof of work. So, in few simple words. Masternode is a computer wallet with full copy of a blockchain that is open and connected to the network 24/7.
Some of the unique functions provided by masternodes are:
• Instant private transactions.
• Reward for its owners.
• Enables the treasury and budgeting system.
• Allows its owners to take part in decentralized governance as well as voting.
• Protects network from malicious attacks.
How do Masternodes work?
Hosting a masternode requires staking of a certain amount of currency within the network. To establish a masternode, first you need to buy the required amount of currency. This not only supports the network, but also ensures fair and honest behaviour from its owners.
For example: To setup dash masternode, you need to have 1000 DASH as collateral in your wallet.
Setting up a masternode
To setup a masternode, first you need to download the core wallet of the currency. You need to run it on computer that remains connected to internet 24/7 with the currency wallet open all the times. Thus, you can either rent a server or run the wallet on virtual private server (VPS).
Once wallet is staked and running with the required collateral amount, it will integrate itself as a masternode in the network and begin to generate passive income as block reward.
Each masternode based cryptocurrency has its own requirements with different staking amounts to setup and run its masternode.
Everyone who have running masternode is rewarded from the network. The amount of rewards depends on coin specs. Frequency of rewrads depends on number of blocks per day (block time) and number of running masternodes. The more masternode is running the less often you will be rewarded.
For example, in DASH 45% of block rewards are received by miners and masternode owners each and the remaining 10% goes into treasury fund which is later used for network improvements.
DASH was the first ever cryptocurrency that implemented the masternode model into its protocol. It called the new tier of masternodes its Proof-of-Service algorithm, and this second tier exists alongside the primary tier to achieve distributed consensus on the Dash blockchain. The two tiers work together to ensure that PoW and PoS maintain the Dash network. Many other coins since then have followed its footsteps and have taken anonymity to even greater level. Some of the well-known masternode coins are: PIVX, ZCoin, Syscoin etc.
Masternodes limitations on transactions come by way of technology limitations and/or third party limitations via an exchange. You may come to find that the particular token you’re trading can only handle 10 transactions per second and so you’re ability to send someone a few tokens may take 30 mins to 2 hours to complete. Regarding exchanges, the amount you’re willing to deposit or withdraw depends on the exchange’s jurisdiction (country of residence). Some require KYC and some don’t. In the future we’ll probably see more KYC requirements.
Volatility is not something we typically associate with the traditional stock market. Anyone who has spent time trading in any market knows that there is always volatility to be found – although it may not be as prevalent as the crypto markets. If you’re looking for volatility, you can find it in the small cap stocks.
Masternodes and the crypto space at large is notorious for volatility. It’s the poster child for volatility! As the market matures and investors with deeper pockets invest in this market, the volatility will subside and we’ll see much calmer waters. In the meantime, learn to remain patient and wise in your investment choices. Not everyone can swim in the chop.
Why Is Masternode a Good Alternative to PoW Mining and Trading?
Taking into account current market conditions more and more crypto enthusiasts are gaining interest in being rewarded for holding tokens. Ain’s it’s beneficial than patiently waiting for the moon? Traditional Proof-of-Work (PoW) mining is not in the best shape. Therefore miners are not an exception as it’s getting harder to stay profitable. Plus, PoW mining isn’t friendly for mass adoption and requires huge network consumption.
Now you might be asking yourself "What is the Masternode?" Let's get down to business!
Masternode is a server on a decentralized network. Some blockchain protocols provide for the creation of particular nodes that perform additional work on the verification of transactions and bring their owners regular profits. Such nodes are called masternodes. They regularly get rewards for completing such actions. Masternode is a good option for the passive income, and there are several reasons why it might be the right time to start running a masternode or a few at once.
Take in mind, that ROI is a relative term in the context of cryptocurrency space. We got used to the practice that ROI in crypto space is a bit another term, unlike the traditional markets where typically ROI measures per year and maybe 10%-20%. Although, ROI represents the result, do not pay much attention to it. It always depends on different factors and varies from time to time.
You may have your own opinion on which coin is the best for investing in masternode, which is fine.
At Monetus we summarize a few criteria to pay attention before listing our masternodes.
First of all, it is crucial to assess the project’s lifetime and the technological aspect. We make sure about?
Is there a solid roadmap?
• What is going on with the activity on the Github?
• How undervalued the project is and what problem does it aims to solve?
• How strong is the team?
• We Pay attention to the liquidity of the coin and check out where to trade the token, and what is the daily volume.
It is credential that you can trade it on several exchanges, ideally not on the no-name with minimal volumes. An exception can be made for super new coins, which did not manage to create a buzz around themselves, attract the attention, and gather the community, but technologically they are pretty perspective.
Although the funds invested in the masternode are under your complete control, the masternode set up process itself requires the investment of specific technical efforts and time. All these factors give us a clear understanding that the masternode launch isn’t a one-click deal. Do not confuse investment in masternode with trading, follow the long-term visionor middle-term (at least half a year).
There is a minimum number of coins required to launch masternode.
This is an individual parameter for each project. Plus, depends on your financial conditions and the amount you are ready to risk. Nevertheless, we would like to note that every coin has a different minimum input threshold to launch the masternode. At the same time, the maximum level is usually not limited.
Finally, ROI. Calculate the percentage ratio of the expected annual profit to the number of coins that are technically necessary for launching the master codes. It is optimal to consider the ROI in the coins you are going to receive.The ROI is determined only by the technical parameters of the coin and active masternodes in the network itself.
Masternode is simply a cryptocurrency full node or computer wallet that keeps the full copy of the blockchain in real-time, just like your have Bitcoin full nodes and is always up & running.
It should be taken into account that masternodes are considerably different in their functionality than normal nodes.
They are different because they perform several other functions apart from just keeping the full blockchain and relaying blocks/transactions as a full node does in Bitcoin/Litecoin.
Some of the special functions that these nodes perform are:
1. Increasing privacy of transactions
2. Doing instant transactions
3. Participating in governance and voting
4. Enable budgeting and treasury system in cryptos
These masternodes are not standalone but they are always communicating with other such nodes to make a decentralized network and are often referred in short form as MN.
Note: Mostly the masternodes perform the tasks that I have listed above but it can slightly vary from cryptocurrency to cryptocurrency depending upon how masternodes have been implemented. But more or less they perform these functions in a cryptocurrency.
Return of Investment (ROI) is a measure of what you earn compared to what you invested in. It is used to evaluate various types of investments. How to calculate ROI?
Money gained – money invested / money invested * 100
So if you invested $1000 and you earn $1100 your ROI is: 1100-1000/1000 = 0,1 * 100 = 10%. If you earned $2000 your ROI is 100% etc. It is really easy to understand what is ROI and how to calculate it, but how it works in masternodes?
ROI in Masternodes
There are a lot of sites that are showing you how big returns you can have from that or that coin. The truth is that most of that stats are accurate only for 2, 3 days… You should never calculate your possible profits according to values that you can find of that sites. Why?
How ROI is calculated in masternodes?
You need to understand how is that work in masternodes because it is way different from traditional investments.
In masternode coins ROI depends on:
– reward structure
– number of active masternodes
– price of the coin
Reward structure is something that defines how much coins your masternode will get from every block.
GIN coin reward structure
As you can see on the picture above, one masternode is rewarded by 10 coins every block, after block 525 600 reward is 5 coins, then 2,5 etc.
Of course, your masternode will not receive rewards from every block. If there are 1440 masternodes in the network and block time is one minute, every masternode should get 1 reward per day (1440 minutes = 24 hours). On the other hand, if there are 100 masternodes you should receive reward almost every hour. You can imagine that like that: every masternode is a person standing in the line, when he gets his reward he is going to the end of the line and waiting again.
More active masternodes means less reward per day. Less rewards means lower ROI (in coins). Most stats sites, or all of them, shows annual ROI. This is very misleading because you will never get 1000% from a coin even if the price will be stable. Why? Because people are setting up more masternodes and reward structure can change. OK, maybe 1000% is possible but reward structure must be perfect, you need to set up more masternodes from the rewards and price after one year need to be the same (or higher) as it was when you bought that coin. One masternode will (probably) never give you 1000%.
And the most important point for a lot of investors, price of the coin. This is what determine your real profit in Dollars or Bitcoins. If the price fell too much ROI doesn’t matter. If the price is stable (yea… in crypto) or if the price is higher, you are earning. This is why you should pick long-term projects. Especially now when we are in the bear market.
Example: Few month earlier DASH masternode costs $200 000. Now it is "only" $60 000. DASH ath (all time high) was about $1500, now it is $60… According to current news about DASH adoption in Venezuela it should be worth few times more… So, if you buy DASH now and the price go up 100% your ROI is also much higher. You still have coins from the rewards that are worth much more now than coins that you bought to set up a masternode.
How to look at ROI?
ROI is important. It tells you how much you can earn and how fast you can set up more masternodes, because this is your target, to set up more masternodes from the rewards. If you believe in the project you should not sell anything until you have “enough” masternodes. How much is that? That depends on you, it can be 5 or 50. However if you think that devs are not doing great or the project is risky you should set up 2 masternodes and then sell rewards to get your investment back. The most important is to not lose money!
You should look at the ROI to know short-term profits. By profits I mean how many coins (not $$) you will get or how fast you can set up second masternode. Only few projects have quite accurate yearly ROI. Projects with a lot of masternodes like DASH for example.
Also, you need to know when to sell. If the project is developing nice but price is still falling just stake your rewards, join pools and set up more masternodes. There is no point to sell under real vaule. You bought for 5k sat. and now it is worth 500? Why you want to sell now? What is the point of that? Of course if the project is dying you have no choice but we want to invest in good projects not scams (easy to say).
Higher is better?!
You should know how it works now. Almost every project on the beginning when there are only few active masternodes have very high ROI. It is natural but if masternodes number is growing and ROI is still very high it is not good.
There is something called inflation. Something that makes Bitcoin great and a lot of other projects bad. If the emission of new coins is too high and there are not enough new investors to buy that coins price will be just dropping. If you are not selling you are not earning. This is the truth, but you need to know when to sell. And there is a difference between selling and dumping!