Fun

What’s at Stake With Masternode Coins?

News Feed - 2019-11-21 08:11:41

What’s at Stake With Masternode Coins?


“Masternode” is a term that echoes less often in the cryptosphere these days, but not because user-controlled nodes have fallen out of favor. Rather, the nomenclature has shifted, with “staking” now used to describe the array of blockchains that fall under this banner. As an examination of proof-of-stake chains shows, masternode coins are very much alive. But as exchanges push staking as a service, are the days of user-operated masternodes numbered?


Also read: Bitcoin.com to Launch $200 Million BCH Ecosystem Investment Fund 5 Years on, Masternodes Are Still Going Strong


When smart contract platform Velas unveiled its masternode staking this week, it iterated on a system that can be traced all the way back to Dash’s arrival on the scene in 2014. Masternodes have evolved significantly since then, with Velas’ staking program reflecting this through provisions like pooled staking, for users who can’t muster enough coins to meet the 1 million VLX threshold, and minimal hardware requirements to lower the technical barriers to entry.



Although a degree of technical knowledge is still required to operate your own node, setup is considerably easier than it was in the early days. Moreover, in the case of pooled staking services such as that offered by Velas via Coinpayments.net, getting started is as simple as sending coins to a specified wallet and then logging back in periodically to collect your staking rewards. VLX rewards start at 8% of all coins staked, for example, which is approximately the same ratio as DASH.


Sites like mnrank.comprovide detailed statistics on masternode ROI and provide general market information on the leading coins. Dash invariably sits top of the list, followed by the likes of zcoin, nuls, and horizen. Below that, things start to get sketchier, with some extremely small market cap coins whose primary raison d’être is to provide a return to masternode operators. The site lists a total of 123 coins and 67,000 masternodes that are currently online. The most popular masternode coins according to mnrank.com


At the height of masternode mania in 2017, when New Zealand’s Cryptopia exchange was still a going concern, there were hundreds such coins, many of which promised astronomical but ultimately unsustainable returns of over 100% per year. To get a handle on the status of staking today, it’s necessary to understand how it was that masternodes came to be. Mastering Masternodes


There are two reasons why someone might want to operate a masternode – one intrinsic, the other extrinsic. In the case of the former, you might run a node because it pays to do so: in return for locking up a tranche of coins (aka your stake) and validating network transactions using your node, you will be entitled to a percentage of the coins minted by way of reward. In the case of Dash, the stake is set at 1,000 coins – $64,000 at current prices. Assuming a stable price for dash, a node ought to provide a return of a little over $5,000 per year. It sounds like easy money, given that the masternode operator retains their stake, and can sell those coins upon ending their participation in the program. In practice, there are very few coins that can be relied on to sustain their price over a prolonged period versus BTC. As such, aspiring masternode operators need to choose their coins wisely.



The second reason for running a node is down to ideological rather than pragmatic reasons. Put simply, you believe in the project and want to support it as best you can. In this context, maximizing ROI is less important than increasing the network’s decentralization through bolstering the number of masternodes tasked with overseeing onchain activity. Because proof-of-stake chains don’t have miners to call upon to include transactions in the next block, the duty goes to nodes instead. When Satoshi created Bitcoin, he anticipated that all nodes would also be miners. In the event, mining has become commoditized, leading to the separation of miners and nodes. As a result, most Bitcoin node operators are read only, capable of monitoring network activity, but powerless to dictate which transactions are included in the next block. The Commoditization of Staking Chains


It’s not just Bitcoin mining that’s become commoditized over the years, with power consolidating in the hands of specialist enterprises with the hardware and user base to provide economies of scale. Staking has become centralized by custodians such as Huobi, Binance, and Coinbase, who automatically dispense the “passive income” or staking rewards that holders are entitled to. Coinbase takes care of Tezos, while Binance covers an array of coins including NEO, ONT, ALGO, and KMD.



There’s no such thing as a free meal, though, and while exchanges offering staking as a service eliminate the complexity of running your own node, there are trade-offs to factor in. These include the security risk of storing coins with a third party and the KYC requirements in order to do so, which erode individual privacy. There are other concerns too which affect the blockchain in question. For instance, with exchanges custodying the majority of all staked coins, they also control the governance rights, giving them de facto control over protocol changes and other key decisions that are determined by onchain votes.


Staking as a service is undoubtedly convenient, but it kills off one of the reasons why nodes exist in the first place: to distribute and decentralize power, thereby increasing the censorship-resistance of crypto networks. Regardless, the genie is out the bottle now, and will be difficult to put back now exchanges are offering a superior product in terms of user experience – decentralization be damned. Proof of stake chains such as Nervos, Koti, Fantom, and Solana are poised to launch their mainnets this quarter, followed by Perlin, Matic, Celo, and Near in Q1 2020. The term “masternode” may resonate less frequently these days, but the staking game is very much alive.


Do you think centralization of staking programs through exchanges is unavoidable? Let us know in the comments section below.


Images courtesy of Shutterstock.


Did you know you can verify any unconfirmed Bitcoin transaction with our Bitcoin Block Explorer tool? Simply complete a Bitcoin address search to view it on the blockchain. Plus, visit our Bitcoin Chartsto see what’s happening in the industry. Share this story: Tags in this story Related In 2019, Cryptocurrency Exchanges Diversified EXCHANGES | Kai Sedgwick


With exchanges controlling so much of the industry inflows, and accounting for more than 40% of the jobs, any review… read more. Mega-Utility Token UPT Will Offer Interest and Discounts on Trading EXCHANGES | Avi Mizrahi


About to make its initial exchange listing, Universal Protocol Token (UPT) will serve as a mega-utility token, offering holders attractive… read more. Kai Sedgwick


Kai"s been manipulating words for a living since 2009 and bought his first bitcoin at $12. It"s long gone. He"s previously written whitepapers for blockchain startups and is especially interested in P2P exchanges and DNMs. Please enable JavaScript to view the comments powered by Disqus.

News Feed

New Tamper-Evident Packaging to Curb Hardware Wallet Vulnerabilities
New Tamper-Evident Packaging to Curb Hardware Wallet Vulnerabilities As digital assets have grown valuable over the last decade, hardware wallets have become a mainstay and there
Haunted by Past Elon Musk Predictions, Gold Bug Peter Schiff Tears Into Tesla’s BTC Acquisition
Haunted by Past Elon Musk Predictions, Gold Bug Peter Schiff Tears Into Tesla"s BTC Acquisition After previously claiming that Elon Musk was too smart to buy bit
MetaMask launches pilot self-custody debit card with Mastercard
Vince Quill7 hours agoMetaMask launches pilot self-custody debit card with MastercardMore than 1 billion individuals remain unbanked or lack adequate access to banking services, according to 2022 data from the World Bank
Binance Explores Acquisition of Brazilian Securities Brokerage Firm
Binance Explores Acquisition of Brazilian Securities Brokerage Firm Leading cryptocurrency exchange Binance is showing its intention of expanding its activities to Brazil. The comp
APAC crypto crime spikes amid legal resource shortages: Chainalysis report
Josh O"Sullivan1 hour agoAPAC crypto crime spikes amid legal resource shortages: Chainalysis reportAPAC’s struggle with increasing crypto crime is exacerbated by a shortage of legal resources and inadequate training fo
Report: Pandemic Response Pushed Global Debt to $272 Trillion in Q3, $5T in Borrowing Expected in Q4
Report: Pandemic Response Pushed Global Debt to $272 Trillion in Q3, $5T in Borrowing Expected in Q4 The Institute of International Finance (IIF) says global deb
Bitcoin Holders In Profit Hits 95%: Is BTC Overheating?
Este artículo también está disponible en español. On-chain data shows around 95% of all Bitcoin holders are in profit following the latest bullish action that the asset&#
William Suberg9 hours agoBitcoin spending copies history as metric flags ‘1st stage bull market’Bitcoin on-chain spending is heating up and, so far, is “rhyming” with past BTC price cycles.5384 Total views49 Tota
100% Uptick For Shiba Inu? Experts Eye Global Reversal As Catalyst
Este artículo también está disponible en español. Shiba Inu (SHIB) is now priced at about $0.00001783, just below a key resistance zone which means that the market is in
Turner Wright4 hours agoUS House Financial Services Committee leadership takes opposing sides on the PayPal stablecoinRep. Maxine Waters said she was “deeply concerned” about PYUSD without a proper regulatory framewo
US stablecoin bill to ‘cement’ dollar dominance, fight sanction evasion
Andrew Singer10 hours agoUS stablecoin bill to ‘cement’ dollar dominance, fight sanction evasionThe Lummis-Gillibrand Payment Stablecoin Act is a step in the right direction, but enactment in an election year may be
IMF: Bitcoin Is Privately Issued Crypto With Substantial Risks, Inadvisable as Legal Tender
IMF: Bitcoin Is Privately Issued Crypto With Substantial Risks, Inadvisable as Legal Tender The International Monetary Fund (IMF) says that crypto assets, like bitcoin, are private