Master Node: Definition, How It Works in Crypto, Profitability

What Is a Master Node?

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.

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.

Master Nodes vs. Full Nodes

Full nodes play critical roles in keeping a cryptocurrency functioning. Each full node contains an entire copy of the blockchain's history of transactions and submits new blocks of transactions for verification by other nodes. Every time a new block of transactions is submitted, all the other nodes must verify the transactions before they are added to the permanent ledger. This includes master nodes. The difference is, master nodes generally don't submit transactions for verification—they only verify those submitted by other modes.

Master nodes also have other responsibilities that full nodes do not. This includes governing voting events on changes to the ecosystem and executing protocol operations.

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.

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