Masternodes are privately-maintained servers that provide infrastructure and operational support to a blockchain platform, amongst other functionalities. Masternodes are generally full nodes with added functionality such as instant transactions, improved privacy and security, and a decentralized governance system.
Masternodes and how they work.
Dash was the first digital asset in the crypto ecosystem to adopt the use of masternodes in 2014. Although Dash – a Bitcoin fork – implemented masternodes for faster transactions and transaction anonymity, the model is one of many solutions that cater to the Bitcoin scalability issue.
Just like mining farms are set up for the purpose of adding new blocks to a blockchain network, an individual or mining firm can set up masternodes to carry out these added functionalities. The main difference is that besides owning necessary node hardware, running a master node is a collateral-based system. This means that it is required that a node owner maintains a significant stake in the cryptocurrency itself, making it a capital-intensive venture. Although the barrier to entry is high, the running cost of a masternode is significantly lower when compared to running a mining farm.
Masternode owners are issued block rewards (usually a percentage of their staked assets) for the crucial services they provide to the entire network.
Although masternodes maintain a complete copy of the entire blockchain’s data like full nodes, they differ in that they do not put forward blocks to be added to the network. Instead, they verify or reject new blocks of transactions before being added to the blockchain ledger.
With an improved platform governance model, instantaneous transactions, enhanced privacy and platform security, the overall benefits of masternodes in a decentralized blockchain network is evident.