Passive returns with a Masternode wallet investment
Passive returns with a Masternode wallet investment

Passive returns with a Masternode wallet investment

By Contest Writer - 13 Jun 2020

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A Masternode is a full node wallet (it stores the entire blockchain) that stays on 24/7 with a certain amount of tokens (usually 1000, but it depends on the decisions of the team behind the project) locked as collateral and that generate returns as an investment.

The halving caused the bitcoin block reward to be cut in half, which should lead to significant price increases, but not everyone is able to read the charts, having to face huge losses in case of poor decisions, as happened to those who entered the market in late 2017.

There is a solution of passive income on the cryptocurrency market that could appeal to both experts and novices: the Masternode.

Those who are already familiar with digital currencies will surely have already heard of it.

How does a Masternode work

Usually, a VPS is used due to the convenience and low cost, which is connected through Secure Shell (SSH) programs such as PuTTY. The instructions to launch on VPS can be easily found on the official website of the project.

The industry has continued to evolve and keeps on advancing: Masternodes have different functions depending on what the developers decide.

Dash, the Bitcoin of the Masternode sector, was the project that launched the idea, integrating Masternodes with a PoW blockchain whose role is to provide additional services (not mining) such as InstantSend, PrivateSend and governance role.

Some projects have adopted the pioneering decision to entrust it with the entire mining process, others have Masternodes that require different specifications among the nodes in the ecosystem such as collateral or hardware with different minimum specifications in order to provide different services (e.g. high output speed).

The Masternode Proof of Stake differs (like the classic PoS) from the Proof of Work in terms of: 

  • the speed of block creation and validation, 
  • the speed of transactions, 
  • the number of transactions per second, 
  • the low cost of electricity and dedicated equipment.

The ROI, compared to the PoS is more regular: in fact, each Masternode is rewarded for its service with a fixed amount of coins in an almost constant period of time (depends on the number of active Masternodes).

Of importance is also the decentralization that offers this type of mining, where operators can enter and exit freely whenever they want.

The ecosystem stimulates behaviours favourable to the growth of the project, since the operators expose themselves to the market trend for a quite long period of time.

DAOs of Masternodes

In this regard, it is worth mentioning the existence of that body, composed of Masternode operators, called DAO (Decentralized and Autonomous Organization) which has the task of voting any changes in the project, allocation of funds for a specific service that will be offered on the network, etc..

This system, if well organized, is self-financing through the funds of the Treasury, a wallet that receives a share of the reward of each mined block and in other cases through donations.

Masternodes seem to be interesting both from a technical and economic point of view.

In the future they could prove to be very useful during the devaluation of fiat coins, which will probably affect the entire globe and is actually already affecting states such as Venezuela (where there is a certain interest in Dash as well as Bitcoin), guaranteeing the introduction of tools that tend to be deflationary in their own account.

Setting Masternodes could become a real job in the same way as what central banks do in terms of monetary policy (since 2008 they have been injecting the market with more and more liquidity) with the difference that the flow of cryptocurrencies is programmed, constant and recorded on the blockchain.

Bitcoin maximalists and many traders argue that only bitcoin and a few other cryptocurrencies will be able to survive over time, others do not recognize the intrinsic value behind currencies that have little market capitalization, but we must keep in mind that the various projects are becoming more and more interoperable with each other thanks to protocols such as atomic swaps that allow the exchange between different blockchain wallets and many other interesting solutions, thus accepting the coexistence of the various cryptocurrencies and their value resulting from the interaction of supply and demand.

But how to choose the cryptocurrency to invest in?

This is difficult to answer. There are websites such as, the CoinMarketCap of the sector, which includes indicative information about the economic specifications of the different currencies along with the information about the team, the status of the community, the vision of the project and the liquidity.

The icing on the cake is that it is possible to apply hedging strategies to protect the collateral provided to Masternodes from the extreme volatility of the market by opening a short position on the currency, thereby sustaining the derisory costs of the VPS and improving the ROI.

An example of this strategy are the futures on bitcoin, useful for the miners to protect themselves from sudden falls in the market who will open short positions at certain price levels.

Unfortunately, this operation is not yet possible for many of the Masternode currencies because they still have a low market capitalization, and there is no interest in offering derivative contracts, but as it happened for bitcoin it could happen for many of the altcoins in circulation. 

The margins for technical and economic improvements are constantly increasing, only time will give us more information.

Simone Ficcincani


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