So before we talk about Masternodes, let us give you a crash course on regular nodes and the blockchain itself.
Remember that one of the best parts about the blockchain is that it is made up of tons of computers all over the world. What is special about how blockchains work is that every single one of those computers had this same exact record of the shared database, so everything that has ever happened on that database is in what is known as blocks. We call this shared database the blockchain, so if you want to add a block to the chain you need to convince every single computer on the network that you have a valid transaction. You can’t edit previous data, you can only add to the blockchain. That is called being immutable and it is what makes the blockchain so special. Immutable shared data is rare and special when it comes to technology, and that is what gives cryptocurrencies such as bitcoin the mental of being the first piece of digital property that has scarcity.
The process of getting all those computers or what I’m now going to refer as nodes to agree on what should be added next. What should be appended to the end of the blockchain is called consensus. What method of consensus those nodes use is dependent on the coin they are helping to secure. Or in other words, the nodes are what make the blockchain able to process so many transactions and safe secure from hackers. The more nodes the harder it is to disrupt the network because of node loss or 51% attacks. So to summarize nodes are a bunch of computers that make the blockchain work and stay secure through a process called consensus. What method or algorithm of consensus is used depends on the coin. Proof of Work (POW) is mining. Proof Of Stake (POS) is staking. You can read more about POW and POS here Regarding staking, the more coin you have, the more staking rewards you get.
This brings us to Masternodes, they are a very popular aspect of cryptocurrency right now. Masternodes require a very large set amount of a coin that is granted even better dividend rewards than typical rewards earned through mining or staking. Most people who don’t know better assume that masternodes are an extension of staking coins, but that’s not true. There are coins that use mining to make use of masternodes, so these kind of nodes aren’t exclusive to staking or mining alone. With that being said running a masternode is just like staking in the sense that you generate passive income through a masternode just by having your coins in a wallet and not moving them, similar to how stakers earn in staking systems. The big thing here to emphasize is that you can create a passive income with the Masternode.
Since of the release of the DASH masternode many coins have released their variant of the system. The overarching feature of masternodes appears to be the locking of a minimum amount of coins, performing or gaining the ability to do a particular task within the blockchain or ecosystem and receiving a reward.
How much money do you earn with Masternodes?
This is going to depend on a couple things you need to consider. Probably the most important thing is that the coin and the team behind it need to be in it for the long term. If the team is no longer solving and stop working on the coin 5 years down the road you’re going to be hurt because your long-term investment is suddenly not worth as much.
The problem is that there is no magic bullet here because no one can see the future. This is why you need to learn how to evaluate a team, look into the leaders of the project. Have they had experience with this kind of project before? What happened to their last project?
The second thing you need to consider is when trying to find the coin you need to make sure it has masternodes supported. Now, this is really a double-edged sword because if a coin goes in their ICO and they’re advertising masternodes they are going to get a lot of masternodes and if they announce masternodes after they have already started trading that is going to shoot up the prices. We’ve seen coins such as VEN or WTC raise in price massively because they revealed they would be adding masternodes.
The secret here is finding coins that might or probably will be offering masternodes in the future, however, this is as easy as finding a needle in a haystack. The third thing you need to know is how the coin facilitates the masternode. For example, masternodes for Waltonchain can receive decent rewards if you just do the staking. Just leave 5k WTC in a wallet and don’t touch it. But you can receive even better rewards if you mine to the wallet address and use the masternode to seal a better mining yield than if you were mining without a masternode. As you can see masternodes can give you benefits in different forms and it all comes down to your money making you more money. The crypto rich get even richer.
The last thing to consider is knowing the payout percentage especially the ROI (return on investment) as the coin appreciates in value over the years. So your Walton masternode yields you X amount at Y percentage. But if Waltons price goes 5 times the current price of Z you would also have earned 5 times Y amount. This is when things get very interesting. Generally, masternode yield percentages decrease over time, but that can be easily be mitigated with an increase in the price of the underlying coin. Clearly masternodes are great but the crux is finding out about a coin before it’s big and masternodes are too expensive for most people. Honestly, there is very little strategy here other than to constantly be on the hunt for these gems.