Cryptocurrencies offer multiple ways by which you can make profits. Many of you may have heard about trading at crypto exchanges or building mining farms, but I am sure there aren’t too many people who know about launching a masternode. So, let’s figure out what nodes and masternodes are and how they work.
You have decided to tap into the progress and installed a bitcoin wallet on your PC, but it takes some time for it to get fully synchronized with the network and receive information about previous transactions. Until this process is completed, it is called a regular node.
To conclude, a node is a cryptocurrency wallet that has not yet downloaded all previous blocks of the blockchain.
Similarly, a full node is a wallet that is fully synchronized with the network. Naturally, only a device connected to the Internet 24/7 can be a full node. Full nodes are used to store information and validate new transactions either confirming or rejecting them. Wallet owners do not get a single penny for doing it — all of it is based on pure enthusiasm and the desire to help.
But that’s not all, there is also a third type of nodes — masternodes. Masternodes are also full nodes, but they are different in a number of ways.
To become a masternode:
- you need to run a full node;
- your wallet (computer) needs to have certain technical parameters;
- you need to have some coins in your account (depending on the cryptocurrency).
This technology is designed to service transactions and ensure compliance with certain terms and conditions of the parties (for example, privacy). To some extent, masternodes perform miners’ functions and get a part of their reward.
It should be noted that the masternode technology is not implemented in all cryptocurrencies! The reason is that there are two types of blockchain: POW and POS, which differ in the way they process transactions, therefore, some currencies can operate with mining alone, while other ones make it possible to create masternodes.
In addition to financial benefits, masternodes often get preferential functions, such as:
- increasing the privacy of transactions;
- performing instant transactions;
- participating in network governance and voting.
To create a masternode, you will need a powerful high-performance computer (same as for mining) and a certain number of coins in your account. In the case of DASH cryptocurrency, it is 1,000 coins, but the number of coins may vary depending on the coin. And the main thing you have to remember is that making an investment to run a masternode involves high risks. An investor must exercise due care when making critical decisions.
- First of all, choose the right coin to work with.
- The demand for the cryptocurrency you have chosen must be high.
- Go for a minimal reward.
- Make sure that the reward system adopted by the network really works.
- Consider probable future changes in the amount of reward.