Before learning about masternodes, let us understand the concept of a node and why is it an important factor in the blockchain network.
Nodes are nothing but the place where the blockchain data are stored in blocks, it can be any device like computers, laptops or big servers.
No data on the blockchain can be accessed without nodes.
How does a node work?
When the miner adds a block of transactions on the blockchain network, it is then broadcasted to all the nodes in the network.
Nodes are able to accept or reject a particular block.
The nodes accept a block only when the transactions on the block are valid.
So since the concept of nodes is clear we can now move on to understand what are masternodes.
Similar to normal nodes, masternodes also help in validating transactions.
But the functionality of masternodes has significant differences compared to normal nodes.
The main function of masternodes is that it uses the proof of stake consensus mechanism, which means most of the masternode cryptocurrencies are able to be staked.
Some of the functionality of masternodes are
Privacy protection in the transaction
every transaction of the masternodes are privacy protected
When we send bitcoin to another wallet, it takes time for confirmation of the transaction, but masternode cryptocurrencies are able to send instant transactions.
Voting and Governance
All the masternode holders of a particular cryptocurrency project have the right to the voting and on-chain governance. Which basically means, they have the right to take further decision on the project development and other facilities.
Running a masternode
Anyone can run a masternode, but each cryptocurrency has a limit of coins that should be owned to run a masternode.
For example Dash, the first cryptocurrency that uses the masternode mechanism has the cap of owning 1000 dash coins for an individual to start its own masternode.
The limit is basically set so that the masternode owners do not cheat or corrupt the system. Since the masternode owner needs to invest in a large sum of coins to run a masternode, it is very unlikely that the person would tend to cheat.
Things required to set-up a masternode
1. Equal number of coins a particular masternode.
For example, if you are setting up a dash node, you need 1000 dash coins.
2. A virtual private server to host the node 24*7,
There are many companies that rent VPS, so there shouldn’t be any hassle to find a VPS.
3. A dedicated IP address.
4. Storage space to run the blockchain. It could be your computer storage as well.
Benefits of running a masternode
Every masternode owner is incentivized for running a masternode since it helps the network in verifying transactions and much more.
So a masternode owner can expect daily, weekly or monthly income, depending on the coin.