What they are and how the masternodes work, are one of the many questions that many users ask themselves to join this world.
As we all know there are many types of cryptocurrencies and each of them has a particularity.
In this post I talked about the various cryptocurrencies that exist on the market today.
Each of these crypto, according to the function it performs, has its own operating structure.
In this case there are cryptocurrencies that are part of the second generation, which have a structure that is based on the masternodes.
But before talking about this system, let’s clear up this type of cryptocurrency.
Second generation cryptocurrencies
Bitcoin was originally created as an initial project, which was introduced way back in 2009.
Over time, the bitcoin infrastructure has been influenced by certain aspects such as the growth of the sector.
As this technology developed, needs arose that bitcoin couldn’t offer at the time.
One case was the speed of transactions and their cost, which at the time began to be problematic.
But this problem had also been addressed by the crypto followed immediately after the bitcoin that were part of the First Generation.
These cryptocurrencies that were supposed to improve Bitcoin only created competition except for some the rest was rubbish.
All these projects had laid the foundation for the new mining business.
In fact, mining is linked to cryptocurrencies that are part of the first generation and which are the longest-lived ones.
In this article I talked about mining and how it works in the cryptocurrency world.
The history of mining continued until 2017 when it was understood that when the system is put under stress, serious latencies are created.
That’s why a new cryptocurrency system was introduced which consisted of managing the blockchain through the masternodes.
This system is much cheaper and much faster than mining.
A concrete example is the Dash cryptocurrency which was the first to introduce this system in 2014.
All cryptocurrencies related to this concept are included in the second generation ones.
The functioning of the Masternodes
This system uses blockchain management, i.e. validation of blocks, through distributed nodes.
These nodes have within them the cryptocurrency that is put in stake i.e. in bulk.
This procedure is important because if the node behaves badly, the tokens are lost, thus ensuring the stability of the network.
In mining, the miner’s guarantee is given by the calculation effort he has to bear, which is higher and more less likely to cheat.
In the masternode system, on the other hand, the guarantee takes place with the token block.
The system is much less expensive compared to mining which uses a lot of electricity for its operation.
This is because the node is a dedicated server (VPS) turned on 24h and allows the maintenance of the entire network.
Furthermore, the transaction speed is much higher and less expensive than in the mining system.
In fact in bitcoin we can have a maximum of 3 transactions per second instead in Dash about 2000 transactions per second.
These cryptocurrencies that use this system have a consensus algorithm called POS which is Proof of Stake.
Note proof of blocking which means the guarantee through the blocking of tokens.
In this article I talked about the POS system and how it works.
It must also be said that many cryptocurrencies also have the functioning of mining in addition to that of the masternode.
These cryptocurrencies have double structures such as Dash, but new ones are being created with only the POS structure.
How a masternode is run and how to use it
A masternode is created through dedicated servers that function as blockchain validators.
In addition, each cryptocurrency that has this system has a certain number of tokens to be used as collateral, i.e. to block.
For example, Dash has a guarantee of 1000 tokens which today would amount to around $ 60,000.
These tokens must be purchased on an exchange and moved inside the wallet that is in one of these VPS.
A service that proposes the creation of VPS is given by Vultr, DigitalOcean or aruba which are the best in this field.
Tokens earned for maintaining the network and thus validating locks are sent to the wallet every day.
There are several sites that allow you to have a picture of the costs of a masternode one of these and Masternode online.
This service allows you to have all the information related to the creation of a masternode, the cost, the number of tokens and etc.
Many crypto have had structure problems that have depreciated so much that it took millions of tokens to make a complete masternode.
This is most of the failure of this system because you don’t have a community large enough to support crypto.
In fact, apart from Dash or Pivx or even Zcoin which are the first and largest, the rest tends to fail easily.
But also the fact of a crypto that has a very high inflation rate makes the crypto itself very depreciate.
In fact, many cryptocurrencies promise earnings from the masternodes around 10-20% in a year that is highly inflation-driven.
Case of use of a masternode
These cryptocurrencies that use masternodes to work, can be used in payments.
This is because they have a very low transaction cost and the ability to do many operations per second.
It is thought to Dash that thanks to its structure it is able to make about 2000 transactions per second and in addition the cost is even around 10 cents.
These cryptocurrencies have shown this type of function which can lead them to a higher level of adoption.
In addition, over the course of time they have presented above all Dash, which has not had a great depreciation thanks to the stake function.
But they can be used as a passive annuity that is paid to us to maintain the network itself.
Securing a Dash or Pivx node allows us to generate a yield of around 6% per year.
Conclusion
In conclusion I say that this system is much more efficient than mining but it presents as we have seen inflation-related problems.
In fact, if the crypto does not have a certain degree of adoption and therefore a certain number of users who use it, problems may arise.
Thanks to their structure, these cryptocurrencies can be very useful in payments because they are instantaneous and inexpensive.
Furthermore, their maintenance cost is reduced to a minimum and therefore allows them to be very competitive on the market.
Obviously the road to overcome systems like Visa or MasterCard is long but the road is right.
For this post it’s all I hope the concept has been clear.