What are Masternodes?

by | Apr 20, 2021

Disclaimer: Posts on the HyperTrader blog and associated HyperLinq websites are for educational and informational purposes only. These posts should not be taken as financial advice, nor are they meant to be viewed as trading advice. HyperLinq Inc. or the authors take no responsibility for any damages or losses.

So, in our earlier article titled – “What’s new with Ethereum 2.0?” We explained two major consensus algorithms (Proof of Work & Proof of Stake). Basically, nodes are servers that store and continuously update the entire blockchain in a peer-to-peer fashion. If you can recall, in the PoW mechanism, the participating nodes are called miners; similarly, in the PoS mechanism, they’re called validators.

But there’s a catch – there are essentially two types of nodes:

  • Normal Node
  • Full Node

What is a normal node?

So, a normal node or light node is a user that wants to run her own wallet system to send and receive payments without relying on a third-party wallet service. Therefore, a normal user running a light node doesn’t need to store the complete blockchain on her computer. That way, the user can interact with a given decentralized network without relying on a third-party service.

However, it’s worth noting that running a normal node doesn’t earn you mining rewards.

What is a full node?

Running a full node means storing and updating the complete blockchain. A full node as a participant of a decentralized network also independently verifies all the newly minted blocks or transactions.

Whereas a miner not only verifies newly minted blocks but also creates new blocks of transactions. So, that’s a major difference between a full node and a miner, and it’s worth noting as people often get confused between a full node and a miner.

Now, we’ve differentiated a normal node, a full node, and a miner. So, what’s the concept of Master Nodes? Let’s find out.

What are Masternodes?

Well, the concept of master nodes first emerged with the Dash cryptocurrency. It basically marries the idea of mining and staking. Besides validating and creating new blocks, master nodes also participate in events such as community governance, voting events, as well as enforcing the laws according to the blockchain.

To become a master node, users first need to stake a given amount of cryptocurrency on the network. Furthermore, it also requires users to download the complete copy of the blockchain and keep the node online 24/7.

As you can deduce, running a master node requires a continuous flow of electricity, up-time, maintenance, storage space, and memory. In exchange for providing these resources, master nodes earn rewards similar to miners.

Running Master Node as a Passive Income

Well, no doubt the idea of making a passive income while you sleep sounds interesting. However, when it comes to running a master node, there’s a big entry barrier. For example, in order to run a DASH masternode, the network requires you to stake 1000 DASH, which costs a staggering amount of approx $300,000.

Furthermore, it also requires decent tech knowledge to set up a master node, let alone the 24/7 electricity and internet connection constraints. Therefore, unless you’ve really done your homework, running a master node for a passive income doesn’t make much sense.

I’d personally advise you to research and invest in the right cryptocurrency rather than putting your money in running a master node or buying infrastructure for mining.

For any questions, reach us out on official Twitter handle @HypertraderApp or my personal handle @backpackerbaba

Head of Content Marketing @ HyperLinq. His love for Chai and mountains precedes everything. Often wonders about things like, "why $1 earned through leverage feels 100x better than $1 earned selling your time?"
Head of Content Marketing @ HyperLinq. His love for Chai and mountains precedes everything. Often wonders about things like, "why $1 earned through leverage feels 100x better than $1 earned selling your time?"

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