Every transaction on the blockchain is verified by multiple nodes. This is a lot of unseen work, regardless of the amount you invest to buy USDT ERC20 or make another trade in the crypto market. In the BTC network, they are distinguished by their computing power. In NEO and Lisk, priority in block formation is given to nodes with a high balance of shares. Some blockchains also have special nodes that perform additional work for a fee. Master nodes, or masternodes, have a privileged status.
Currently, in 2023, there are more than 70 cryptocurrencies, including a full list of masternodes, each of which provides the opportunity to earn money by maintaining the functionality of blockchains.
Differences between PoW and PoS
“Supernodes” are capable of interacting with various consensus algorithms. For example, Horizen uses the Proof-of-Work mechanism to form blocks. In turn, the Energy cryptocurrencies in 2018 and ETH in 2022 switched from PoW to Proof-of-Stake. PIVX, a three-tier masternode platform, also operates on a PoS basis.
PoW is the earliest consensus algorithm. It is used in such large cryptocurrencies as BTC, LTC and others. In these networks, blocks are formed by miners who solve complex mathematical problems using powerful equipment. This mechanism ensures network security, but its significant drawback is high power consumption.
As an alternative to costly PoW mining, the PoS algorithm was developed. Special equipment and large energy costs are not required to verify transactions using this method. Users hold cryptocurrency in their wallets and are given the right to form a new block depending on their share in the system. PoS provides high network scalability and high throughput
Regardless of the chosen consensus algorithm, the main goal of the master nodes is to verify the created block and confirm its correctness. This ensures the functionality of the entire blockchain. Unlike PoW and PoS, masternodes are not solely responsible for the formation of blocks, but provide additional services to the network, improving its security and technical characteristics.
Principle of operation
Technically, a masternode is a second-layer blockchain built on top of the main network. The core platform ensures the functionality and security of the entire blockchain. The second level introduces additional features that significantly improve the system:
- Due to the absence of a centralized part in the blockchain, records remain resistant to hacking or deletion.
- The ability to perform real-time testing ensures system performance.
- Masternodes play an active role in the blockchain governance process.
The masternode mechanism is also known as Proof-of-Service (PoSe). The investor’s income depends on the number of transactions (in the case of PoS) and on the power of the network (in the case of using the PoW algorithm). The cryptocurrency rate also affects the profitability of investments.
As a result, masternodes not only provide additional functionality to the blockchain, but also serve as an additional layer of security, governance and efficiency for the entire network.
Ways to earn money and profitability
Profit from participation in privileged nodes in the blockchain is calculated as a percentage of the investment amount. The entry threshold is usually higher than for cryptocurrency staking. Information about the list of masternodes, their conditions and return on investment can be tracked on monitoring resources such as Masternodes Online.
The list of top masternode coins includes:
- Solana.
- Polkadot.
- DASH.
- Tezos.
- VeChain.
- Theta Network
There are various ways to earn money:
- An investor can independently create and maintain a masternode by blocking a certain amount of digital currency. Each network sets its own entry threshold, for example, 1000 coins for DASH or 10 thousand for PIVX. The wallet must be available around the clock, which is often implemented through a dedicated server (VPS) or special hosting.
- Some participants pool their assets to run a common node together. However, control of the shared wallet is transferred to one participant, and this is a rather risky undertaking.
- Investors can also buy ready-made masternodes or shares in them through special services such as Dashmasternode. Automated systems can independently manage nodes on secure servers, ensuring continuous operation and paying rewards for a small commission, usually 10%.
Owners of privileged nodes have to constantly monitor the performance of servers. Therefore, many investors prefer to buy ready-made masternodes or shares in them through specialized services. The profitability of preferred nodes is calculated based on the price of the coin and is not tied to USD or BTC, which makes it subject to changes in price in the market. Investors often look at current returns on masternode listings for various cryptocurrencies when making investment decisions.
