DEFINITION of Master Node (Cryptocurrency)

Master nodes are full nodes that incentivize node operators to perform the core consensus functions of running a blockchain.

BREAKING DOWN Master Node (Cryptocurrency)

The increasing cost and technical complexities involved in running a full node computer on a blockchain network often leads to a decline in the number of full nodes, as it's not very profitable.

Mining pools usually take up most of the resources through their mining activities. This reduction in full nodes impacts the efficient working of a blockchain, as it may lead to longer transaction processing times and network congestion.

Master nodes attempt to solve the problem by acting as full nodes, and their operators are financially rewarded, similar to miners in a proof-of-work system. They operate on a collateral-based system to ensure that they provide genuine services as a backbone to the blockchain network, and hence are also known as “bonded validator systems.”

Dash, a fork of Bitcoin, was the first virtual currency to adopt the master node model.