• Bitcoin Doctor

What is a Cryptocurrency Masternode?

Updated: Mar 14, 2018

Master and Slave “nodes” or simply “computers on the network” are as old a concept as computer networks themselves, but in the world of Cryptocurrencies such as DASH or PIVX, close cousins to Bitcoin the term “Masternode” has taken on new meaning and represents one of the best opportunities for accumulating cryptocurrencies.

Relatively safe, immune to volatile ups and downs in the price of the underlying cryptocurrency asset, Masternodes are one of the hottest topics in both the architecture and economics of Cryptocurrencies around the world.

Bitcoin and most other cryptocurrencies are based on a decentralized, public ledger of all transactions, known as a Blockchain.

This Blockchain is secured through a consensus mechanism; in the case of Bitcoin, the consensus mechanism is called Proof-of-Work (PoW).

Computers attached to the Bitcoin network secure it, perform accounting and security tasks are called “MINERS” and what they do is attempt to solve difficult computational problems with specialized computer hardware, and when they solve the problem, they receive the right to add a new block to the Blockchain.

If all the other computers on the network running the same software agree that the problem was solved correctly, the block is added to the Blockchain and the miner is rewarded … PAYDAY. Some cryptocurrencies other than Bitcoin work a little differently, however, because they add two or more layers or tiers to their network.

For now, let’s talk about a system with two layers or tiers … MINERS and MASTERNODES.

Typically, the second tier is powered by Masternodes (Full Nodes), which enable financial privacy, a common term is “PrivateSend”, instant transactions “InstantSend”, and various decentralized governance and budgeting systems. Because this multi-tier architecture is so important, Masternodes are also rewarded when miners discover new blocks.

A typical breakdown is as follows: 45% of the block reward goes to the miner, 45% goes to Masternodes, and 10% is reserved for the budgeting system.

The Masternode system is referred to as Proof-of-Service (PoSe) or Proof-of-Stake (PoS), since the Masternodes provide crucial services to the network. In fact, the entire network is overseen by the Masternodes, which have the power to reject improperly formed blocks from miners.

If a miner tried to take the entire block reward for themselves or tried to run an old version of the network software, the collective Masternode network would orphan that block, and it would not be added to the Blockchain. In short, miners power the first tier, which is the basic sending and receiving of funds and prevention of double spending. Masternodes power the second tier, which provide the added features that make these various cryptocurrencies different from their counterparts.

Masternodes do not mine, and mining computers cannot serve as Masternodes.

Additionally, each Masternode is “secured” or “Staked” by usually a high fixed amount of the underlying cryptocurrency that is held in a type of electronic TRUST.

Those funds in the trust remain under the sole control of their owner at all times, and can still be freely spent.

The funds are not locked in any way. However, if the funds are moved or spent, the associated Masternode will go offline and stop receiving rewards. The power of this opportunity is easy to grasp.

  1. The funds are secure in a user-controlled wallet.

  2. The Masternode operates independently and requires little maintenance.

  3. The rising value of the underlying cryptocurrency asset is one of two major benefits, but there is an ongoing daily, weekly and monthly dividend in most cases that continually increases the ROI or Return on Investment which is NEVER the case when a trader is simply trading cryptocurrencies.

There are some great resources to find out more about the landscape of Masternodes.

One of our favorite resources is click the link to find out more.

Book a consultation with us to find out if Masternodes are for you...


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