Masternodes (Blockchain)

Masternodes are network servers in certain decentralized blockchain systems. They carry out specific functions and may enjoy privileges network participants in most blockchains do not.

Overview

Masternodes are blockchain network participants that stake a certain amount of cryptocurrency as collateral to earn the ability to validate transactions on the chain. Masternode holders are rewarded for their participation through network rewards in the form of said cryptocurrency.

There are two different common "consensus mechanisms" for blockchain networks. Proof-of-Work and Proof-of-Stake. The most popular blockchain, Bitcoin, utilizes Proof-of-Work. Here, network participants, or nodes, solve complex mathematical problems to validate block transactions. This results in high energy consumption and a network where individual nodes are inconsequential due to the massive amount of computer power necessary to solve the equations.

In Proof-of-Stake blockchains, nodes must "stake" or hold collateral in their network in the form of the network's cryptocurrency. This system incentivizes participants to behave honestly or else risk losing their stake. This drastically reduces the amount of energy necessary to validate transactions while still providing robust security.

People commonly mistake Masternodes with stakers in a PoS blockchain. The main concepts are similar, but they are different in practice. Many masternode blockchains utilize PoS consensus. However, PoW networks also implement masternodes, as is the case with the biggest network using masternodes: Dash.

Differences between PoS and masternodes include:

• There is no minimum amount of the network's cryptocurrency PoS participants must stake, whereas masternodes have minimum limits. This makes the financial requirements for masternodes significantly higher. In many cases, the masternode holder needs to stake thousands of dollars’ worth of the crypto coin.

• Masternode holders need to operate with near-100% uptime to receive block rewards. PoS stakers only need an active, open wallet.

• Cryptocurrency deposited as the stake for a masternode holder is locked for a period of time and cannot be removed from the network. Stakers can remove their collateral from the network at any time.

• Masternode holders must meet the technological standards of the network. Their nodes have to meet minimum hardware requirements, and they must operate with a static IP address.

• Masternodes carry a copy of the blockchain's entire transaction history and help maintain the network. They facilitate transactions on a given network and validate them to ensure integrity. Then, through the blockchain's underlying consensus mechanism, blocks are created and added.

• Masternode holders may receive additional perks for their participation beyond regular block rewards. This could include governance privileges, where each masternode holder gets a vote in the project's governance proposals. This gives these masternode holders a real say in the direction of their network.

Popular Masternode Projects

As of Jan. 2021, there are nearly 300 masternode projects online with a combined market cap of over $2 billion. Popular masternode projects include:

• ·       Dash. Dash is the original and easily the most popular masternode project, with a market cap comprising nearly 50% of the market cap for all masternode projects. It uses the PoW consensus method with masternodes to secure the network. Its primary function is as a form of payment or "digital cash." It has privacy options built-in and currently facilitates untraceable transactions.

• ·       Firo. Formerly known as ZCoin, Firo is another privacy-based cryptocurrency that uses the PoW consensus method. Like Dash, its goal is to foster anonymous financial transactions.

• ·       Energi. Energi is a PoS blockchain with masternode integration. It allows for Ethereum-compatible smart contracts to be processed on its network and has a robust, community-based governance structure.