Definition
Masternodes are part of the cryptocurrency infrastructure for Bitcoin, Ethereum, Dash, and other cryptocurrencies. Masternodes do not add new blocks of transactions to the blockchain, unlike regular nodes. They instead verify new blocks and perform special roles in governing the blockchain.
Understanding the term
Masternodes are a part of cryptocurrency infrastructure that verifies new blocks and perform special roles in blockchain governance. Unlike regular nodes, master nodes are not responsible for adding new blocks of transactions. Masternodes just form one part of the decentralized infrastructure of cryptocurrencies which provides the transparency, rules, and security that make a blockchain network work. They play a key role in the management and governance of a blockchain protocol.
Operating a masternode requires significant financial investment. It requires computer hardware that is far more expensive than normal options, as well as a significant stake in the particular cryptocurrency. Operators running the masternode are awarded a share of block rewards from the cryptocurrency.
Many see masternodes as a relatively simple alternative to mining, as it incurs lower operating costs and less expertise. However, many find the relatively high initial investments and running costs challenging to make a profit.
Takeaway
Masternodes operate on a collateral-based system requiring operators to own a significant amount of cryptocurrency. Masternode operators are rewarded with guaranteed crypto earnings which is usually a percentage of their stake.