In the cryptocurrency market, nodes are the individual systems of the wide computing network that initiates and approves individual transactions.
Nodes store the historical data about each block of the chain, which the miners and stakers can easily access to shape their decision-making.
In short, nodes are the instruments used for disseminating information in the blockchain network. They check the authenticity of the blocks in terms of their adherence to rules and regulations.
Three types of nodes power the functions of a blockchain network: The Light Node, The Full Node, and The Masternode. This article will discuss masternodes in detail.
What are Masternodes?
Masternodes are customized nodes that do predetermined actions in addition to the usual functions of a crypto node. The specialized functions of the masternode include
- Making direct transactions
- Verifying the validity of the transactions
- Enabling instant, private transactions
- Setting up decentralized applications (dApps)
- Monitoring the governance changes on a specific blockchain
Masternodes are run by certain people like the miners who discover new blocks. They are rewarded by the protocol for running the specific masternodes. They are a source of authority on the blockchain protocol.
The masternodes are modeled on Dash cryptocurrencies, which were the first players in the market to enable digital, wallet-to-wallet transactions.
Masternodes were initially a subset of the users of Dash cryptocurrency who verified and validated the transactions on the network. This model was later adopted by other protocols too.
So what are the prerequisites for setting up a masternode? You need special hardware to perform the masternode functions.
You also need to collateralize the masternodes with cryptocurrencies to ensure that only real people with the overall prosperity of the protocol in mind become masternode operators. They are non-collateralized masternodes too, but they are less valued.
The Mode of Operation of the Masternodes
Masternodes work universally across all consensus mechanisms.
- Masternodes primarily verify the validity of each transaction. They ensure that no transaction is duplicated to avoid double-spending.
- As mentioned before, masternodes conduct the groundwork needed to make consensus among the participants of a blockchain to enable the implementation of new governance decisions.
- Masternodes also incorporate new nodes into the blockchain network.
- The specialized masternodes provide privacy for transactions and other advanced functionalities such as the swift processing of payments on a blockchain.
It is important to note that the major blockchain protocols like Bitcoin and Ethereum do not have masternodes. They operate using the normal nodes. The following blockchain networks run with the help of masternodes.
- Decred (DCR)
- Horizon (ZEN)
- PIVX
- Zcoin (XZC)
- Energi (NRG)
- Syscoin (SYS)
The Pros and Cons of Masternodes
A glance into the pros and cons of masternodes is given here.
Pros
Masternodes provide incentives to their operators using the native currency of the concerned protocols. The users can stake their coins to double up the security of the platform.
They are not mandatorily required to validate a transaction that was previously verified by another node operator; they have the right to dissent and act as per their conscience.
Cons
Some stakeholders believe that masternodes essentially undermine the decentralized nature of crypto transactions.
This is because not everyone is equipped with the expertise to run a masternode. They argue that there is no level play in the field of masternodes.
Moreover, a masternode operator needs to put at stake a certain amount of cryptocurrencies to get the authority to run a masternode.
This staked amount cannot be sold or exchanged to get a profit if the token has a bullish market.
Should you Invest in Masternodes?
If you have enough expertise in the technicalities of the blockchain network and you wish to stake them for the overall development of the blockchain along with earning a passive income for yourself, then you should consider investing in masternodes.
You can become a crucial part of the development of the network and become a valued service provider in the realm of blockchain networks.
