In order to fully understand masternodes, it’s awfully beneficial to first understand what a regular node is.

If you need a refresher course on nodes, or if you want to learn more about them, check out my past video titled: “What You Should Know About Nodes: Bitcoin & Dash”

Masternodes are nodes that allow their networks to offer special services to their users.

Most commonly, these services include:

• Anonymous transactions
• Instant transactions
• Participation in the form of voting rights to decide fund allocation for special projects.

You can think of masternodes as enhancers of a network. They facilitate the extra perks that would overload normal nodes.

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Passive incomes are possible because these masternodes are paid for their work.

This income usually comes from a portion of the block rewards. Each network that offers masternodes has differing payment schedules and percentages. Running a masternode does not require the same amount of computing power as mining for Bitcoin, but they often require large investments in that particular coin.

There’s also a nice economic upside for networks that have masternodes.
Because they require large amounts of the coin to be stored in a wallet in order to remain valid, masternodes also help the price of that coin to remain relatively more stable. The range for required investment can vary anywhere from 500-10,000,000 coins required!

What it takes to run a masternode:

• Significant investment in that particular coin

Each masternode has different requirements

• Appropriate wallet to store the coins

• Computer that runs 24/7

If the computer goes down this could and most likely does, affect your payouts.

Because they offer special services, they are often complex and high maintenance to keep them up and running. Some might consider them to be more difficult then running a fully validating node, yet less difficult than a mining rig.

If you’d love to take part in running a masternode but you don’t have the resources in the form of a constantly running computer to do so, you can use masternode hosting services.

What you’ll typically need for masternode hosting service:

• Significant investment in the coin

• Stored in an appropriate wallet that YOU control

• Subscription fees to the masternode hosting service

If you want to take advantage of a masternode hosting service, please pay attention here.

When choosing a hosting service, if they tell you to send your coins to a wallet that they own or control, if they tell you to give them your private keys, most of the time this is the signal of a scam.

One exception would be if you’re looking into using a “pool”. Which means you would be contributing coins along with a group of others to meet the investment requirements of a particular masternode.
You’re payouts will reflect the percentage of your investment to the pool.

Just keep in mind that with these pools, you are putting all your trust in the entity that controls the wallets and distributes the payments.

I’ve shared this website in past videos but it doesn’t hurt to share it again. This one is a good visual for those of you who want to explore the masternode options that also gives you an idea for your potential return on investment.

If you’re still on the hunt for passive income with cryptocurrencies and masternodes don’t really fit what you’re looking for, don’t miss my next video which will be covering mining pools.

Additional Reading:

Discussion on potentially good masternodes
Masternode Hosting Service
Example of a sketchy Masternode Pooling service (Notice the typos)
Comprehensive list of masternodes and their ROI