A masternode is a device that completes unique functions for the care and maintenance of a particular blockchain. Masternode operators choose to join and operate individually, which helps to decentralize currency systems like Dash, a fork of Bitcoin.
Masternodes work as full nodes to solve congestion issues with transaction backlogging and other network issues. Masternode operators are incentivized like miners, to ensure that they provide viable services for blockchain maintenance.
How Do Masternodes Operate?
Masternodes communicate with each other on the blockchain, as they maintain a decentralized network. They work to create instant transactions and increase transaction privacy, in addition to keeping full record of the blockchain in real time.
While anyone can theoretically run a masternode, there are specific barriers in place to guard against malicious attacks. Depending on the cryptocurrency, masternode operators need a minimum amount of coins––for Dash, an operator needs 1,000 Dash units and a dedicated IP address for their Dash wallets. By having an investment in the system, operators have extra incentive to provide efficient and excellent service to that particular blockchain.
Dash was the first cryptocurrency to adopt the masternode model, but others utilize the model to date. In Dash, masternodes have voting rights on budgeting proposals, help maintain private transactions, and contribute to decentralized governance. Dash’s system pays operators a share of the block reward so masternode operators get a return on investment, as well as gathering fees from services like InstantSend and PrivateSend.
Individuals can choose to invest in a masternode share, if they cannot afford to operate a masternode on their own. For a fraction of the 1,000 Dash or currency equivalent, an individual can be invested in the success of a masternode without the responsibility of running it. Each cryptocurrency varies in its incentives and specifics for masternode operation, but masternode operators still stand to gain profit while contributing to the upkeep of the blockchain network.