Blockchain technology is often associated with cryptocurrencies such as Bitcoin, therefore, there is some kind of monetary value attached to your exposure to this new market class.
While trading on a regular basis, or even investing in long-term solutions using cryptocurrency exchange markets such as Binance is one way to ‘make a buck’ in the scene, it is certainly not the only or necessarily the most efficient way to accumulate wealth in the crypto realm.
Other ways of participating in the market such as mining exist since the beginning of the blockchain era and they find their way into the alternative monetary system through protocols under the Proof of Work (PoW) umbrella.
In PoW-based DLT platforms, a miner can contribute to the validation process of the transactions by offering processing power that is later being used to solve computationally-intensive mathematical problems in order to confirm and promote a transaction that takes place on a blockchain using PoW. Miners are compensated with block rewards and transaction fees in exchange for providing their processing power to help secure the blockchain network.
In order to mine cryptocurrencies effectively, a large investment in hardware is required since the industry is dominated by large-scale companies that command enormous capital. However, some blockchains use different mechanisms that do not require mining and are more accessible to the everyday participant in the cryptocurrency space.
According to Investopedia, “Masternodes are full nodes that incentivize node operators to perform the core consensus functions of running a blockchain”.
In a nutshell, a user that not only has the whole blockchain stored in his computing unit (node), but also uses their processing power to solve mathematical problems in order to promote transactions to secure the network’s integrity, is classified as a Masternode.
Masternodes are financially rewarded for their contribution and they are usually compensated with the respective cryptocurrency and/or token they’re helping to ‘maintain’.
One of the most successful Bitcoin forks, DASH, was among the first to utilize the Masternode concept.
The Proof of Stake (PoS) consensus model alongside with masternodes can be an attractive alternative for entering the crypto scene, as it requires little technical skill or knowledge of the financial market. In addition, users do not need the amount of processing power that is required for mining most cryptocurrencies profitably.
Malicious actors will not be tolerated by the above models that represent alternative ways of running a blockchain to that of PoW.
According to MasterNodes.Pro, a Masternode-focused tracker, there are currently 122 Masternode-based cryptocurrencies, with DASH being ranked in the first place due to its early adoption of the operating model.
While the combined market cap of the Masternode ‘clique’ is only worth about $1 billion, it is expected that more established and newly generated cryptocurrencies will follow the financial model and join the ride.
Hence, Masternodes are rare, compared to the over 2,000 cryptocurrency projects out there, yet very attractive to individual investors who don’t want to mess with trading/mining and still get that extra buck.
If you’re banking on another large cryptocurrency bull-run in the near future, similar to the one we experienced in 2017, joining a Masternode project could be a good way to see the value of your existing holdings grow while also receiving a steady stream of rewards to grow your crypto position.