So you’ve decided to make your crypto work for you by hosting a masternode. It isn’t a process for the faint of heart. If you’ve never used Linux or seen a command prompt, then you may want to consider letting a masternode pool do the heavy lifting instead.
If you still think the DIY route is right for you, then our simple guide to masternodes will let you know what to expect from the biggest proof-of-stake blockchains.
Quick Masternode Introduction
What is proof-of-stake?
Bitcoin’s network of miners is infamous for its energy consumption and high fees. The number-crunching they perform serves as the proof-of-work (PoW) that lets the network confirm a new block has been added to the blockchain. In exchange, the miners receive the block awards of fresh bitcoins.
Proof-of-stake (PoS) is another, less energy-intensive, way to generate consensus for blockchain transactions. Owners of a blockchain’s cryptocurrency can become the “masternodes” who process the transactions. These people lock away a certain amount, or stake, of their coins and then let their computers process the transactions. In exchange, they get paid the block awards.
Due to the logistics of bootstrapping a new blockchain project, several groups adopted a hybrid PoW/PoS system where the miners do the work of adding blocks to the blockchain while masternodes perform higher-level functions that add unique capabilities to the blockchain platform.
How do masternodes work?
Masternodes consist of software running on an always-connected server. Each blockchain works differently, but all of them share some commonalities when it comes to getting a masternode up-and-running.
First, you must fund a dedicated wallet with the required collateral. For pricey cryptocurrencies like Dash, this could be as expensive as buying a house. For smaller projects — and all of them are much smaller than Dash — the buy-in isn’t as expensive.
Next, you setup an always-one Linux server — typically Ubuntu — through a Virtual Private Server provider like Digital Ocean or Vultr.
Then, you configure the masternode software on the server and get it running.
Finally, you sit back while the coins start flowing in.
Of course, it’s a little more complicated than that. This simple guide to masternodes will give you some insights into what’s involved and provide links to the blockchain project’s detailed guides.
How to Setup a Dash Masternode
Dash was created to address perceived weaknesses in Bitcoin’s design. Specifically, the pseudo-anonymity of Bitcoin’s blockchain means it cannot duplicate the fungible nature of cash. When you pass a dollar bill to someone else, the transaction is known only to the two of you. Also, that other person has no way of knowing where you got that dollar bill. But with enough personally identifiable information, anyone who inspects the Bitcoin blockchain can figure out who you traded with and where the bitcoin you own came from.
Dash uses its hybrid PoW/PoS system to create a blockchain with the speed needed to support retail transactions and the privacy needed to replace cash. These properties are reflected in the name “Dash” which is a combination of the words “digital” and “cash.”
Dash uses 10% of the block reward to cover development expenses and then splits the remaining 90% evenly between the miners and the masternodes. Each masternode waits in a queue for a chance to be selected. The 10% of the masternodes that have waited for the longest time comprise the selection pool. A process called block hash entropy selects the masternode to process the next block. The masternode then goes to the back of the queue.
Dash’s cryptocurrency, the DASH, are traded on 100 exchanges including giants like Bitfinex and Kraken. Lighter services like Changelly and ShapeShift also support the DASH. From Masternodes Online:
- Market cap: $1.53 billion
- Daily Volume: $324 million
- Price: $185.644
- Masternodes: 4,815
- Required Collateral: 1,000 DASH ($185,644)
- ROI: 6.92%
Since many people will not want to put their house up as collateral for a Dash masternode, there hosting services like CrowdNode will let you place a fractional stake in a Dash masternode pool. You can get a CrowdNode account for as little as one Dash and start earning Dash “dividends” right away. The price for that convenience is the 15% fee CrowdNode charges.
Roll your own masternode
A Dash masternode can be set up through a VPS provider or on dedicated hardware. It requires Ubuntu 16.04 running on a system with at least a 1GHz single-core processor, 1-2 GB of RAM and 8-16 GB of storage. You can store the 1,000 Dash collateral in a Dash Core Wallet, but Dash recommends using a dedicated hardware wallet like those made by Ledger. The following outline will give you an initial idea for what’s involved in creating a Dash masternode, but you will need to review the Dash masternode setup guide for full details.
Setup your VPS
- Create the Ubuntu server.
- Assign a hostname.
- Copy the IP address, username and password to a text editor.
- Setup your server.
- Create a non-root user.
- Install a firewall.
- Add swap memory.
Send the collateral to your wallet
- Send exactly 1,000 Dash to your wallet.
- Get the masternode private key.
- Wait for 15 confirmations to come through.
Install Dash Core on the server
- Install manually or use the automated dashman utility.
- Enter the masternode private key from the Dash wallet.
- Restart dash.
- Wait for synchronization to complete.
Start the masternode
- Issue the start command from the wallet.
How to Setup a Horizen Masternode
Horizen, formerly known as ZenCash, has plans to expand beyond being simply a privacy-focused cryptocurrency. Its community wants Horizen to be a platform for privacy-centric distributed apps (dapps) such as messaging and publishing. Under the hood, Horizen is a hybrid PoW/PoS blockchain.
Unlike other PoS blockchains, Horizen has two types of masternodes, Securenodes and Supernodes. Securenodes earn 10% of the block reward in exchange for providing the basic communications functions for the blockchain using encrypted peer-to-peer communications. Supernodes earn 10% of the block reward for providing the higher-level functions that make Horizen a dapp platform. Securenodes have a lower collateral requirement and consume fewer computing resources. Supernodes have a higher collateral requirement and must run on more powerful systems.
Horizen’s cryptocurrency, the ZEN, is traded on nearly two dozen exchanges which include giants like Binance and OKEx as well as simpler services like Changelly. From Masternodes Online:
- Market cap: $89.4 million
- Daily Volume: $1.02 million
- Price: $19.4582
- Masternodes: 15,438
- Required Collateral: 42 ZEN
- ROI: 40.04%
- Masternodes: 1,845
- Required Collateral: 500 ZEN
- ROI: 28.24%
Horizen provides a community-generated list of more than a dozen host providers. Some are multi-blockchain hosts such as NodeSupply. Others are members of the Horizen community who host multiple nodes as a community service. Horizen’s listing also provides a series of warnings in bright red text telling you that they aren’t responsible if you do business with scammers.
Roll your own Securenode or Supernode
Horizen provides very detailed instructions for setting up each kind of masternode. While installing a Securenode or Supernode on a VPS is possible, this option is more expensive than with other masternode systems due to Horizen’s demanding computing requirements. Installing on dedicated hardware may be preferable.
- Create a non-root user.
- Install the zend daemon.
- Adjust the security settings.
- Configure Arizen.
- Setup the node tracker.
- Configure services.
- Configure certificate renewal.
How to Setup a Zcoin Masternode
Zcoin is a hybrid PoW/PoS blockchain that fully implements the Zerocoin white paper developed by researchers at Johns Hopkins University to enhance Bitcoin’s privacy.
The Zcoin masternodes, called ZNodes, receive 30% of the block reward. All Znodes wait in a queue for their turn getting paid. With each block creation, a Znode is picked at random from the 10% of ZNodes at the front of the queue. This ensures Znodes have an equal chance of getting paid and helps prevent DDoS attacks. Once paid, each ZNode returns to the end of the queue.
Zcoin’s cryptocurrency, XZC, are traded on 11 exchanges: AEX, Binance, Bitcoin.co.id, BitSquare, Bittrex, BXThailand, CoinExchange.io, Cryptopia, LiteBit.eu, Nova Exchange and UpBit. From Masternodes Online:
- Market cap: $71.5 million
- Daily Volume: $1.00 million
- Price: $12.9697
- Masternodes: 3,601
- Required Collateral: 1,000 XZC ($12,969.70)
- ROI: 23.72%
Eight hosting services support Zcoin masternodes: GINcoin, HostingKing, Masternodehosting, myce.world, Node-vps, Nodesupply, PDABase and zednode. Zcoin is quick to point out that they “do not endorse or recommend any particular Znode provider.” They also make it clear that they do not review or monitor any of the services they list.
Roll your own Znode
Znode provides a setup guide, but more than other projects it assumes you are fully versed in the Linux command line.
Setup Zcoin Official Wallet
- Update or install the latest Zcoin Official Wallet.
- Encrypt and backup your wallet.
- Generate your Znode key and save it in a text editor.
- Generate a deposit address.
- Deposit exactly 1000XZC into the wallet.
- Get your transaction ID and index.
- Create a znode.conf file on your computer with a name for your masternode, the transaction ID and the index.
- Restart the wallet.
Setup VPS server
- Sign up for a VPS account.
- Create an Ubuntu 16.04 server (1+ GB RAM, 20+ GB storage).
- Create a new user to run the Znode.
- Install the firewall.
- Create a swap file (if using less than 2GB RAM).
Setup Zcoin on VPS
- Login with new user ID.
- Create zcoin.conf file.
- Start the zcoind daemon and let it synchronize.
- Start your Znode.
- Wait for 6 confirmations to appear in the desktop wallet.
- In the desktop wallet, click Start-Missing to start your Znode.
- Wait for the Znode to enable.
How to Setup a PIVX Masternode
Private Instant Verified Transaction, or PIVX, is a hard fork of Dash that prioritizes anonymity and fast transaction rates. Unlike Dash’s mix of proof-of-work and proof-of-stake, PIVX is a pure PoS blockchain with a decentralized governance system.
Out of each block reward, 10% is carved out to the network’s budgeting system. The remaining 90% is split between PoS providers and masternodes. PIVX uses what it calls a Seesaw Reward Balance System to discourage centralization. As the number of masternodes grows, a greater share of the block reward goes to the staking nodes. As the higher rewards attract more stakeholders, the system shifts the other way and boosts the masternodes’ share of the reward at the expense of the stake nodes.
PIVX’s cryptocurrency, the PIV, is traded on Bittrex, Cryptopia and Yobit. From Masternodes Online:
- Market cap: $70.4 million
- Daily Volume: $592 thousand
- Price: $1.123
- Masternodes: 1,630
- Required Collateral: 10,000 PIV ($11,230)
- ROI: 7.9%
Three hosting services support PIVX: Coin-Server, Eclectic.io and PIVX-Host
Roll your own masternode
The following overview will give you an idea for what’s involved with setting up a PIVX masternode with a VPS provider. PIVX provides a detailed walkthrough as well as instructions for running a masternode on a Raspberry Pi server.
- Buy 10,000 PIV on an exchange.
- Install the PIVX wallet on your computer.
- Create a Linux server (Ubuntu 16.04) on a VPS.
Gather setup information
- Get the masternode GenKey from the desktop wallet.
- Get the masternode’s account address from the desktop wallet.
- Deposit exactly 10,000 PIV into the desktop wallet.
- Get the proof of deposit from the desktop wallet.
Setup the masternode
- On your computer, edit the masternode.conf file with the gathered information and edit the pivx.conf file.
- On your server, edit the pivx.conf file.
- Close and restart the masternode app on the server.
- Issue the masternode start command.