Masternodes

This step is going to be about Masternodes. What exactly are masternodes, you ask?

 

Coinstaking vs. Masternodes

If you have read even a few articles on cryptocurrency you might have heard the following verbiage staking, sometimes also referred to as coin staking, or Proof of Stake (POS).  You more than likely have also heard the word masternode.  You might be asking yourself the following questions. What is Staking? What are Masternodes and what is the difference between the two.

Proof of Stake (PoS) concept states that a person can mine or validate block transactions according to how many coins he or she holds. This means that the more Bitcoin or altcoin that is owned by a miner, the more mining power he or she has.  The first cryptocurrency to adopt the Proof of Stake method was the altcoin Peercoin, followed by Blackcoin, and ShadowCoin

Proof-of-stake (PoS) is a type of algorithm that a cryptocurrency blockchain network aims to achieve to obtain distributed consensus. Unlike proof-of-work (PoW) based cryptocurrencies (such as bitcoin), which is when the algorithm rewards participants who solve complicated cryptographical puzzles in order to validate transactions and then create new blocks (think mining), in PoS-based cryptocurrencies the creator of the next block is chosen in a deterministic (pseudo-random) way, the chance that an account is then chosen depends on its wealth (think the stake). In PoS cryptocurrencies the blocks are usually said to be forged, or minted, rather than mined. Also, typically all the coins are created in the beginning and the total number of coins never changes afterwards.

Quick Note: There are some other versions of PoS where new coins can be created. Therefore, in the basic version of PoS there are no block rewards (e.g. as in bitcoin); so, only the transaction fees are taken.

Proof of Stakes involves buying the coin and keeping it in a wallet for a certain fixed period, just like putting money in a fixed deposit for a fixed period of time.

With a Fixed deposit, you will be paid interest as a reward, for Proof of Stake, you will be paid additional coins as a reward.

The factor determining the amount of reward is as follows:

Maturity Period
The longer the time, the higher the reward
3 months 20%
6 months: 50%
12 months: 100%

Simple or Compound Interest.
Reinvestment is allowed, however after the expiration of the coin, for compound interest, you can then reinvest your reward.

Advantages of Staking:

You do not need to spend money buying a machine.  You would just want to use the money that you would have used to buy the machine and buy the coin then wait for your balance to grow in your wallet. The value of the coin will grow at the same time.

You may mine the coin.  The amount of coin that you can mine depends on the amount of coin you have in your wallet. It is like having a strong bank account in your personal computer.

Disadvantages:

Once you stake a coin, you have locked that coin for a certain period of time. You are unable to sell the coin during this time.

What are Masternodes?

In simplest terms, think of Masternodes  as being designed to bridge the gap between efficiency and decentralization.

Masternodes are a type of node that performs a specialized function on a blockchain. They are servers that are established by community members once they have fulfilled certain criteria. Masternodes are also known as a bonded validation systems.

The first cryptocurrency to implement this masternode model into its protocol was Dash.  Under what Dash calls its proof of service algorithm, the privacy-centric altcoin introduced the concept in order to allow for instant transactions as well as facilitate its PrivateSend function which enables private transactions. As an added incentive, those running masternodes are provided with the advantage of participating in the governance model of the community. This is converse to normal nodes who are not able to vote.

A second tier network of masternodes exists alongside a first tier network of miners to achieve distributed consensus on the blockchain.  This two tiered system ensures that proof of service and proof of work preform symbiotic maintenance of Dash’s network.  Plenty of crypto currencies have adopted this mechanism as their own.  What was originally intended to oversee instant, anonymous transactions is now being implemented for a plethora of other services.

To run a masternode, someone will need to put up a significant amount of tokens. This is because masternodes operate similarly to the proof-of-stake consensus mechanism. The amount required to set up a masternode varies from blockchain to blockchain. While bonded validator systems require a stake of the token in question in order to function, they should not be confused with proof-of-stake systems. Different blockchains with varied consensus mechanisms can employ masternodes regardless of what method they use to achieve consensus.

PIVX, a privacy-focused decentralized open source cryptocurrency, uses masternodes to facilitate private transactions. However, Syscoin, a blockchain platform and cryptocurrency, uses them to power a decentralized marketplace. Exscudo, is also a gateway between the traditional financial system and the cryptocurrency market, has a decentralized exchange powered by a network of bonded validators.

Running a masternode is considered a smarter way of HODLing, because it puts the tokens that you possess to work and creates a profit for the operator. The Dash community explains this analogy: “Think of a masternode as a savings account with a minimum deposit of 1,000 DASH. A traditional savings account pays interest, and a masternode pays rewards which are very much like interest. In the case of a masternode, the reward (or interest) comes from performing services for the network. Not from lending. The big difference between a traditional savings account and a masternode is that your initial deposit never leaves your possession.”

Once a masternode is live, it accommodates a unique series of functions, such as instant and/or anonymous payments.  They also enable a decentralized governance system that allows node operators to vote on important developments within the blockchain.  As compensation for their troubles, masternodes typically share an equally 45% of block rewards with the blockchain’s miners.  The other 10% goes to the blockchain’s treasury fund, and operators are in charge of voting on proposals for how these funds will be allocated to improve the network.

It’s important to note that simply holding the requisite amount of currency for a masternode is not enough to run one.  Each currency has its own guidelines for maintaining a masternode, and if these conditions aren’t met or the currency is moved from its staking position, a masternode will cease operating

The cost of operation also keeps operators honest.  Unlike Bitcoin miners who may switch from one coin on its blockchain to another based on its profitability.  Operators are incentivised to properly maintain their masternodes.  The exorbitant initial investment serves as collateral, whereby if operators want their investment to pay off, they have to play by the blockchain’s rules.  Between the high operation costs and promising return on investment, it’s in an operator’s best interest to operate his/her node properly and without any malicious intent.

While their lasting application is still speculative, masternodes have serious potential to expedite distributive consensus and further democratize decision making within blockchain communities.  If you can muster the capital, they’re certainly a promising investment opportunity, as their approach to consensus and network monitoring offer a middle-of-the-road solution to the problems facing both proof of work and proof of stake models.

The objection can be made that Masternodes make it easier to game or manipulate the system. This is why Masternodes are (by design) so expensive: not only is it impossibly expensive to attack the network, no one’s going to endanger a network in which they’ve invested a million dollars.

Owning and running a masternode is a type or form of staking, but often extremely more difficult to reach, unfortunately.

In order to stake proof of stake (POS) coins, you only need the wallet with some coins in said wallet and left open. After that, depending on the coin, the reward is often calculated very differently.

Sometimes you might perhaps get chosen by your coins age. This means the longer you’re holding your coins, the better chance you have that your coins will sign the transaction. (the older your coins the greater the chance of getting a reward which is proportional to the amount of held coins) This means sometimes you may get chosen by only the amount of coins that you are currently holding (the more coins the greater the chance of getting a reward).

One of the other differences between staking and a masternode is that you can stake some coins with absolutely no minimum at all! Simply having less than a dollars worth of a coin could technically be earning you an income.

However, the returns of masternodes can be even better! The downside to this is that there is often a very large minimum of coins that need to be held for a masternode. At the time of this writing, it would take almost a quarter million U.S. dollars worth of bitcoin to purchase a masternode for Dash!

I don’t know about you, but I don’t happen to be quite that liquid to have a quarter million bucks just sitting there collecting dust. And, I am guessing that isn’t your current situation either.

Sure there are other masternodes you can buy for other currencies. But, these are all still somewhat pricey. (I haven’t seen one below $500)

There is another option you can do to still get all the sweet returns of a masternode without all the upfront cost. If you were paying attention in the last step, you have probably guessed it by now.

We are going to use the strategy of pooling coins for masternode shares. To make things even easier, we are going to use all the websites and programs from the last step in order to accomplish this.

Some of these programs support coins others do not. Some of these programs have features and benefits that others do not like free airdrops as well. After you start purchasing some of the masternode shares, I would build up several shares in at least half a dozen coins there as well.

 

Simple POS Pool

 

Staking Lab

 

Stake Cube

 

Once you have a chance to build up a few good wallets of staking coins in these programs, you should have no trouble getting involved with the masternode pools as well. Once you have at least about a half a dozen of each earning you a good amount every day/week, we are going to follow our same strategy and start withdrawing half of our weekly earning from these coins and masternodes.

It may take a couple months or so to get enough into your half a dozen or so staking pools where you are earning big enough rewards to start withdrawing half of those rewards for the week and moving that profit over to the masternode shares available in the exact same programs. It may actually take even a few more months to  gain enough traction with your masternodes to start taking out HALF the earnings you have made from those each week.

However, Once you ARE making enough profit that you can start withdrawing about HALF your profit from both staking rewards and masternode pool shares, you are going to recycle those profits yet again into something even more fun……

 

 

Dan Watson and Arkham Industries provide an informational service only and are not responsible for any investments made applying this information. The results described are not typical and are not guarantees of future income. Any investment contains risk and is 100% the responsibility of the investor to assess the risks/rewards involved. It is possible to lose some or all of your investment. We assume no liability assumed or implied for your application of the information shared from the training programs.

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