In the crypto arena, we’ve all heard about those so called “Masternodes”. In this article,we are explaining basic concepts of Masternodes and why they are a worthy investment.
Different type of Nodes:
A full Node, is a computer server, connected to other nodes and constantly synchronising within the blockchain. A full node has an up to date copy of the entire blockchain and validates new transactions, ensuring the blockchain remains a true and valid platform.
A light Node, is a node that does not have a copy of the blockchain, and therefore cannot validate the blockchain rules. It can accept fake transactions. Light nodes need, to query full nodes for operations like history or address balances in order to function correctly.
A Miner node, solves a mathematical problem,(proof of work) to seal the newest transactions into a block. When the miner solves the problem, it broadcasts a new block to the blockchain. The block is then validated by the network and the miner receives it’s reward.
A Masternode is a full node, which uses Proof of Stake to create new blocks. The block creator is elected upon various rules, that rules dictate how the coin is coded. In general, the staking rewards are given according to a masternodes wealth,(depending on how many coins the masternode is staking) or a lottery between all the masternodes. Masternodes also have other functionalities such as voting, shuffling transactions for an increase of privacy, or instant sending.
Proof of work (POW) vs Proof of stake (POS)
POW : A block is calculated by solving mathematical problems. Those problems are more and more difficult as the overall network processing power grows.
POS : The block solving difficulty depends on how many coins are staked on the masternode.
POW : The block rewards goes to the fastest computer which solved the mathematical problem. As all the miners are competing with each other, the demand in energy is also growing.
POS : The rewards depends on the coin. They can be fairly distributed, or determined by a lottery system.
Return on Investment
POW : The ROI can be very attractive but can be impacted by many factors such as price of electricity, price of computers and GPU, network difficulty and market prices. It gets harder and harder to be profitable with mining.
POS : The ROI depends on various rules such as the amount of masternodes in the network, but the factors are less volatile. The long term ROI is usually much lower than POW but also less volatile. The ROI is directly impacted by the market value of the coin.
Masternodes as an investment
Besides participating in securing the blockchain, a Masternode generates a passive income, with almost no investment. The only consequent investment is the minimum coins you will need to stake to be eligible to run the Masternode. Masternodes are the smartest choice for wallet holders, to earn interests on sleeping coins.
Which Masternodes are worth investing in?
With many different coins, come many different rules and risks. In the safe side, the ROI is stable for the long term (like DASH or ZCOIN), and the coin is backed by a solid team, and a proper project. On the risky side, the ROI can be outstanding, but as many coins, subject to hype, high volatility and high risk. There are lots of chances that few months after your investment, the value of the coin drops or the project vanishes completely.
The most lucrative Nodes depend on the coin and don't require heavy upfront costs or maintenance. It is the best way to generate passive income while simply keeping your coins. A crypto investor should definitely spread the risk and put up a part of his/her crypto assets into Proof of Stake Coins.
With Quaestor Solutions, we eliminate the hassle and supply with the Masternode setup.
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