May 29, 2019 Knowledge Center

Master Nodes and Their Importance for Cryptocurrency

Master nodes are simply computer wallets or full nodes that run on a decentralized network. Full nodes are the full copy of the blockchain transaction history, found on any device. Full nodes have different features that complete unique functions, such as validating transactions and blocks, accepting blocks and transactions from other nodes, and relaying these transactions to other full nodes.

Master nodes differ from each other since there are different cryptocurrencies and networks. In other words, each cryptocurrency has its own type of master node and they each have their own advantages and disadvantages. They also have different payout systems based on the consensus agreement of that specific network.

Some of the advantages of master nodes are that they:

– Add a layer of privacy to transactions
– Complete transactions instantly
– Enable users to take part in the management of the network and the voting process
– Allow a budgeting and treasury system using cryptocurrencies

The above-mentioned tasks might vary from cryptocurrency to cryptocurrency depending on how the master nodes are implemented. Also, these master nodes do not operate alone but communicate with each other to form a decentralized network.

The Advantage of Nodes

Blockchain networks have different features. Some blockchains are supported by miners, while some are supported by nodes.

What does this mean and how does it affect the type of blockchain network?

A network that is supported by miners always has to run a full node to determine which transactions are valid. These validated transactions will, in turn, be used to form a new block.

Without these full nodes, miners do not have complete access to the full blockchain transaction history, and thus have no way of determining whether the transaction is valid or not.

On the other hand, a node does not necessarily need a miner to operate. A device can run on a full node without necessarily building new blocks of transactions. Thus, a full node is like a pass-through point that contains a directory. A miner is similar but he has to create new blocks simultaneously with data passing through.

Proof of Work versus Proof of Stake

Not all cryptocurrencies can run a master node, because each blockchain network has its own unique consensus mechanism. Two of the most common types of these mechanisms are proof of work (PoW) and proof of stake (PoS).

Blockchain networks, like Bitcoin, that use the proof of work mechanism are supported by miners, who enable transactions by mining the blocks and adding them on the blockchain network. They do that using rigs.

Rigs are super fast computers that process the data and guess the answers to complicated mathematical puzzles. A rig that guesses the correct answer is rewarded because it has proven that it did the required work. The downside of this mechanism, however, is that it consumes a lot of energy.

Because of this disadvantage, a new consensus mechanism – proof of stake – was created. This mechanism is supported by master nodes, which process the transactions in that blockchain network. Proof of stake rewards miners not through the amount of work they’ve put in but in how much stake they have in the network.

Cryptocurrencies that Rely on Master Nodes

There are several blockchain projects that run master nodes on their network. Some of them are listed below:

– Dash
– PivX
– Vcash
– GoByte
– Block
– Neutron
– Bata
– ChainCoin
– ION
– Innova
– Monetary Unit
– XtraBytes

How are Master Nodes Run?

Since master nodes operate on the blockchain platform, they are decentralized – meaning, they can be run by anyone anywhere in the world. However, before users can run a master node, they have to get through the entry barrier, a level of security that ensures the system does not become malicious. Anyone who wants to run a master node first has to commit certain units of that specific crypto coin or collateralize those units.

That is an important way to test the commitment and motivation of a user who wants to run a master node. The fact that they have staked something in the system serves as proof that they will not hurt nor corrupt the system.

After passing through the entry barrier, there are also other requirements for anyone who wants to run a master node:

– Own the minimum required amount for that particular crypto, which will be different for each cryptocurrency.
– A VPS (virtual private server) to host the node 24/7
– A dedicated IP address
– A storage space to save the blockchain

How Profitable Is Running a Master Node?

Many investors are interested in running a master node because it’s a way to earn passive income. Once you meet the requirements and start to run the master node, you receive an incentive. It’s like buying stock – when they gain a value, you earn from the stock.

But how much can master nodes earn?

The amount varies depending on the cryptocurrency you invest in, how effectively the crypto  uses the master node, and how much the crypto’s value appreciates over time.

Considering the factors above, there’s no definite answer to how much profit the master nodes will earn. Some crypto will be profitable, while some may earn less than you expect. But given the value appreciation of cryptocurrencies, if all of them continue to steadily increase, running a master node will be a very profitable endeavor.

Generally speaking, though, master nodes yield a reward of between 5% and 20% per block, depending on the type of the supported cryptocurrency. Reaping these rewards is enough to offset the expenses incurred in running master nodes. It also serves as an inspiration for those who are interested in creating master nodes in the future.

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