Masternodes are dedicated servers that validate transactions on a blockchain and provide a passive income for those that operate the masternode. Anyone can be a masternode operator, granted they have the capital and willingness to invest for the long-term. A small understanding of programming (at least an ability to follow step by step instructions) will help with the set-up. To start, the masternode model requires you hold a minimum amount of currency in that currency’s core wallet. You will then set up a VPS (virtual private server) because you need your masternode available 24/7 with a dedicated processor core and about 25GB of hard drive space to hold the network’s blockchain. Once these requirements are met, along with the conditions put forth by network, you can sit back, let the masternode do its work and reap the returns that are deposited into your wallet. In most cases, a percentage of the transactions are split between the masternode operators and currency miners. With a small percentage of the rewards allocated to a fund dedicated to the improvement of the network. This information can be found in your currency’s white paper.
In theory, the large initial investment deters investors to abandon their positions, which creates an environment of backers that are willing to help grow, develop, and improve the network. This would help to minimize the harmful actions of “pump-and-dumpers” (unless the initial investment to set up a masternode is too low). Masternode operators are also offered the opportunity to vote on certain technological and financial developments within the network, thereby establishing a decentralized governing body and providing more stake in the well-being of the company. Masternodes require less energy than the proof of work model (mining) and make it harder to create a monopoly on mining.
Things to look for when choosing a masternode.
Each coin has a list of requirements that must be met in order to establish your masternode. That information will be displayed on their websites. Make sure you can accomplish those. Each coin has a minimum investment required to set up a masternode. Make sure you can safely afford it. Check the return on investment (ROI) numbers and make sure you are going to be rewarded for your efforts. Do your research on the company behind the coin as well. A useful tool for masternode research is masternodes.online. They provide information like, ROI and initial costs, as well as links to websites and the github pages for each currency. I’ve used icobench.com to supplement my research too. They rate currencies based on the team, their vision and the product. Github provides valuable facts and documentation on each project that are necessary in making informed decisions. Remember, there are many crypto currencies out there and they are not created equal.