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Masternodes as an Investment

Use Masternodes instead of mining to earn a passive income.

Ever since the origin of the Internet, people have been thinking about how to configure PCs and websites so that they can make as much revenue as possible with minimal effort. The generation of the so-called "passive income". For a long time, such goals could be achieved with affiliate sites or making use of bonus programs. While one was able to generate considerable income with mechanisms such as these, it was later overshadowed by the potential for success in cryptocurrency.

With the invention of cryptocurrencies and the introduction of Bitcoin, crypto-mining was born, which is indispensable for the generation of bitcoins. Since cryptocurrencies are based on the simple principle of requiring different parties (nodes) to validate the transactions of the network, the network must also "give back" something for that service. This compensation should not only cover the running costs (such as for electricity, cooling and technology), but also make the effort attractive.

These pay-outs through the network have evolved through the adoption of more and more effective hardware as a real source of revenue for passive income. You just have to buy the hardware, set it up in a suitable environment and configure it - and you're ready to go. The devices then compute complex tasks to validate the transactions within a network and earn the appropriate reward. As bitcoin and other cryptocurrency rates have increased exponentially, this has quickly become one of the most popular and successful ways to earn passive income in the digital sphere. Understandably more and more people want to jump on this train.

The concept, where the so-called mining process acts as validation for the network, is also called "proof-of-work". This already implies that the validation is done by a proof of the computation provided. But even if all miners involved in the network calculate the solution independently of each other, only one result is used in the end. This creates enormous redundancies. Although these contribute to the high security of the cryptosystems, enormous amounts of resources are also wasted. In its peak times, it was estimated that the entire Bitcoin network devoured as much energy as the island state of Ireland.

Newer cryptocurrencies are therefore experimenting with alternative validation processes. They aim to offer comparable security, but reduce the consumption of resources significantly – by using a less computing and energy-intensive consensus mechanism than proof-of-work, or limiting its significance in the network. Instead, these networks rely on nodes, which can prove their trustworthiness by their broad involvement. The assumption that the more stake a node holds on the whole network, the more likely it is, especially in its own interest, to maintain the integrity of the network. This allows the users who holds many shares in the network to carry out validation ("staking"). This validation method is also called "proof-of-stake".

A variation of the classic proof-of-stake validation method was introduced in 2014 in the Dash network. The assignment of the validation task is handled by special nodes, which must show a certain minimum deposit. Only nodes of this type, Masternodes, are allowed to partake in the transaction validation to confirm the blocks. These are then rewarded with a certain fee for there efforts.

In the basic principle, mining and Masternodes are similar: mining allows for validation by solving a complex mathematical formula to prove its intent, whereas for Masternodes, are entitles to validate if they prove a minimum stake inform of coins. In both approaches, it depends on the configuration of the network, which validation methods are supported, how exactly they work and what earning opportunities exist. There are coins that restrict themselves to one of the validation methods, but also those that hybridize two different approaches. So, it is not excluded that one can operate a network that simultaneously validates with Masternodes and miners. Dash itself, for example, relies on conventional mining and Masternodes alike - where the block fee is split at 45% each into mining and Masternodes.

Invest in Masternodes

Just a few steps are needed to set up a masternode. Although these can vary somewhat depending on the network, they are basically always the same:

  1. You set up a PC or server that has a dedicated IP address, under which it is constantly reachable.
  2. You install the wallet of the desired coin and synchronize a part or the whole Blockchain with the PC.
  3. For this wallet you transfer the sum, which according to the network configuration you need to keep a Masternode.
  4. You lock the deposit in the wallet and configure the node as a Masternode. From then on, the Masternode is actively available to the network as a validator.

Care must be taken to ensure that the master mode is never offline or unavailable, because some networks may consider such inaccessibility as a misuse of trust - it would limit the confidence that Masternodes enjoys in the network. In addition to the monetary requirements, which are often the equivalent of a few hundred or a thousand euros (depending on the coin and exchange rate), there are also a few technical conditions that must be met: In addition to the fixed IP address and uninterrupted accessibility must also ensure that there is enough storage space available at all times to make a copy of the blockchain.

After successful activation and commissioning, the payments (block rewards) will be paid out on a regular basis to the wallet of the Masternode. For most coins this happens on a daily basis - but some networks pay only weekly or even monthly. The amount of the rewards depends of course on the respective coin, the volume traded and the number of active masterternodes. There are some websites that can look into the block explorers of each network to determine the current payouts and ROIs (Return on Investment).

There you can also see how high the traded volume is, how the price is and how many active Masternodes there are - this helps to decide on a coin. As with any other investment opportunity the following also applies: risk and profit opportunities must be weighed against each other.

The risks of the Masternodes death are that the required minimum deposit limits the amount of time spent on the masternode trading. Therefore, during one’s investment one is also bound to the price fluctuations of the respective coin. These fluctuations can be very high in cryptocurrencies, especially for the smaller coins - but the year 2018 has also shown that even crypto giants like Bitcoin can be affected. Conversely, this risk naturally also represents an opportunity: If the price of the relevant coin rises, you can profit from the increased value of your own contribution.

If you decide to invest in one of the riskier coins that attract huge ROIs (high returns), we recommend switching your earnings to a more stable currency as soon as possible. This avoids the effects of negative price chutes. Especially with these high-risk coins you can double your investment partly in a few months or even weeks - the more important it is to get the profits to safety in time.

To illustrate how much you can earn with Masternodes, here are some examples that illustrate the profit margins:

Coin Invest for a Masternode (US$) Average daily returns in US$ Anual ROI
Dash $123.320,00 $22,0989 6,54 %
ZCoin $8.338,26 $3,9457 17,27 %
Trunk Coin $79,91 $3,5654 1.628,46 %
Merbel $917,94 $7,3940/td 294,01 %

Last Update: 20.04.2019

Here it quickly becomes apparent that the larger coins (such as Dash) can yield returns comparable to good traditional financial assets. The high earning potential of the peaks of the crypto-boom are hard to find elsewhere. If you are looking for huge profit margins, you will now find what you are looking for in small, less known coins: yields of several hundred percent of the original investment are still possible there.

But it also becomes clear that you must start of with large starting capital in order to be able to get started with some Masternodes. Fortunately, some providers are circumventing this problem by hosting so-called masternode pools, where you can also participate with smaller investment amounts and, as a kind of shareholder, buy into a masternode. An overview of these providers we have put together here.

Masternodes - the alternative to mining

In principle, Masternodes can earn similar returns to mining. However, the Bitcoin hype of 2017 in particular has ensured that the competition in the mining sector is very large. Especially small miners have a hard time achieving worthwhile profits. However, since Masternodes are still relatively unknown in comparison, the participants have to share the block rewards, the payments for the masternode, only with a few others. However, it must also be clear that coins that currently use Masternodes do not yet achieve a trading volume comparable to Bitcoin.

However, there are major differences in the acquisition and operating costs. To effectively mine, you must either purchase expensive graphics cards or dedicated ASIC mining equipment. This not only devours large amounts of capital - the resale value of the equipment also depends heavily on the development of demand. Alternatively, there are many providers, such as Hashflare, where you can rent a corresponding computing power. It should be noted, however, especially with Hashflare the initial buy in sum is not payed back, meaning that enough income needs be generated to cover this cost, before actual profits can be achieved. Of course, if you're mining for yourself, there is also the immense electricity costs that are essential to running the computers and cooling them.

On the other hand, this looks a bit different with Masternodes: as the hardware requirements for Masternodes are much lower, the cost of hosting is very limited by direct comparison. In addition, you can end the hosting yourself at any time - the deposit is then again at your leisure. In other words, in contrast to mining, Masternodes retains much of the profits instead of burning them for acquisition and operating costs.

Masternode ROIs

Masternode ROIs