Masternodes were first implemented by Dash and have since been adopted by many other currencies. For the purposes of this article we are going to be looking at Dash masternodes.
Whilst there will be a lot of similarities between Dash’s masternodes and other currency’s masternodes the specifics for exactly how their masternode system operates will vary between the different currencies and we would encourage users to research these specifics for any currencies they wish to invest in; whether they wish to become MNOs or not.
To become a Dash MNO an investor is required to “lock away” 1000 Dash and host a server to perform their masternode duties.
Additionally MNOs are invited to vote in Dash proposals to allocate funds on behalf of the Dash treasury, however, this is not a mandatory duty.
What Do Masternodes Do?
Masternodes give a currencies a two tier network allowing their “standard” features to operate on one tier whilst unique and innovative features operation on another.
In day to day usage of Dash the majority of transactions take place in the “standard” proof of work manner, a transaction is sent, it is verified and then confirmed by the mining network. This is entirely separate from the masternodes.
If a user is in a hurry to get a transaction sent immediately they are able to use the Dash InstantSend feature where, for a slightly higher fee, the transaction is completed instantly utilising the Masternode network. The Dash PrivateSend feature is also powered by the Masternode network for users who wish to send private transactions. If you would like further details on either of these features please see the relevant articles.
In Dash 10% of mining rewards are allocated to the treasury which can be allocated to proposals. MNOs are invited to vote on proposals that they believe will benefit Dash the most. Many different businesses and ventures have been funded via this treasury such including the Dash Core team, videos like the ones made by Amanda Johnson that you may have seen on our site and the development of our site.
Masternodes & Security
InstantSend and PrivateSend could technically be run on the normal network and there is no technical requirement to have them running through masternodes, however, these features only work if the majority of people processing the transaction work in the best interest of the currency. If these functions were performed by “normal” nodes it would be possible for a malicious actor to setup thousands or even millions of nodes and effectively damage or even destroy these functions. By requiring a MNO to hold 1000 Dash it means that it would never be in the best interest of the majority of MNOs to damage their own investments and it would be near impossible for one person or group to own a majority of masternodes.