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    Masternode (Cryptocurrency)

    Master nodes are part of the infrastructure that sustains cryptocurrencies such as Bitcoin, Ethereum, and Dash. Unlike regular nodes, master nodes do not add new blocks of transactions to the blockchain. Instead, they verify new blocks and perform special roles in governing the blockchain.

    Key Takeaways

    • Master nodes verify new blocks of transactions in a cryptocurrency but unlike other nodes do not submit new blocks to the network for verification.
    • Master nodes operate on a collateral-based system, meaning the operators need to own a significant amount of the cryptocurrency.
    • In exchange for their investment in time and money, master node operators are rewarded with guaranteed crypto earnings, usually a percentage of their stake.

    Understanding Master Nodes

    There are several types of nodes that together form the infrastructure of a decentralized blockchain, collectively providing transparency and security and running the software that implements a cryptocurrency's rules and functionality. Nodes maintain the massive ledger of public transactions in a given cryptocurrency and verify new transactions. Master nodes also play a special role in the management and governance of the blockchain's protocol.

    Operating a master node requires a significant financial investment and running costs, including a significant stake in the cryptocurrency itself and computer hardware that is far more expensive than your average laptop. It also requires expertise. As an incentive for people to maintain master nodes, operators are rewarded with cryptocurrency earnings, usually a share of block rewards.

    Dash, a fork of Bitcoin, was the first virtual currency to adopt the master node model but many other cryptocurrencies have adopted the model.

    Profitability of Master Nodes

    Master nodes are seen as a relatively simple alternative to mining, requiring far less expertise and incurring lower operating costs. But it can still be challenging to make an attractive profit from operating a master node, particularly given the relatively high initial investments, including the currency stake and equipment, and running costs such as power charges and hosting fees.

    Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein.

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