Master Nodes - My Next Passive Income Adventure?

I'm still relatively new into my crypo journey and my passion in the space lies in finding different ways to earn passive income.  In mid-January I got into staking, a fairly easy way to earn some extra income on your crypto.  In mid-February, I got into yield farming and quite honestly I still have a lot to figure out here with so many different platforms out there.  Now in mid-March, I'm turning my attention to master nodes and will share in the journey here.

I've not invested in master nodes as of yet but will be writing a series of articles to bring you along as I walk down this path.  The first question I had to answer is exactly what is a node?  

What is a Node?

Nodes are basically the framework of a blockchain.  They can come in many different forms but the primary forms are computers and servers.  The blockchain itself is just a number of blocks of data and this data is stored on a node.  These nodes constantly exchange data with each other to maintain the latest data.  In terms of mining, when a miner attempts to add a new block of data a node will transmit the data back to all the other nodes.  More on that in a bit.

Types of Nodes?

There are two types of nodes with subtypes under them; full nodes and lightweight nodes.  A lightweight node or light node is also known as a Simple Payment Verification (SPV).  These only store a subset of the data from a block and relies on full nodes to complete the blockchain.

A full node, on-the-other-hand, fully validates the blockchain.  A major difference between the two is that a full-node actually stores the entire blockchain ledger either fully or in a condensed manner.  These nodes help maintain the security of the blockchain and verify the transactions that occur on the blockchain.

Types of Full Nodes?

There are two types of full nodes; Pruned and Archival.  A pruned full node downloads the blocks from the beginning but will only store data up to a limit (or set size).  Upon reaching this limit, the pruned full node will only keep the headers of the old blocks and where they place in the chain, deleting the rest of the data within each block.  Despite not having all the data, they are still considered full nodes and therefore can verify transactions on the blockchain.

An archival full node is really what most people would envision as a full node as it contains all the data on a blockchain.  As you might guess, they can take up much more storage space given all the data they contain and come in a variety of different forms.

Types of Archival Nodes?

There are four main types of archival nodes; Mining, Staking, Authority and Master.  Mining nodes are fairly well known and they set out to prove they finished the required work to complete a task.  The consensus used here is "Proof of Work".  Miners solve cryptographic problems primarily with CPUs, GPUs and ASIC rigs with the first one to complete the task, which is verified by a full node, adding a block to the chain and being rewarded accordingly.  

Staking nodes are basically a way of holding (or staking) a given amount of crypto and being paid back in interest.  The consensus used here is a "Proof of Stake".  Staking is really a game of chance but with minimal barriers including the hardware and software required so it is fairly commonly used among less sophisticated investors who don't have the equipment, technical knowledge or time necessary in the other types of archival nodes.  As such, the ROI generally isn't a great either.

Authority nodes are centralized in nature and not something I want to spend much time on.  The consensus used here is a "Proof of Authority".  You must apply to become an authority node and be chosen by a community or the development team.

What is a Master Node?

The final kind of archival node is a master node.  Unlike the other kinds of full nodes, the master node cannot add blocks to a blockchain.  Master nodes simply keep track off transactions and validate them.  The provide an important role within the blockchain by adding to the security and like others share in rewards for their services.

Like staking, if you want to run a master node you must also put up crypto as a form of collateral - often in large sums.  As such, they use a "Proof of Stake" mechanism like staking.  Unlike miners, you are expected to be running 24/7.  The master node is unique in the fact that it allows for instant transactions and is also part of the tokens governance system.  A master node also uses very little energy compared to mining making it more environmentally friendly.

Generating Passive Income with a MasterNode

Owners of masternodes get a ROI for the payment of services they provide.  There are nearly 200 different master nodes available and you can find them listed on MasterNodes.Online, a great place to start your research.  Here it list the number of nodes required, costs associated, market capitalization, age of platform and the ROI generated.  It is often said that the best returns are delivered early in these types of projects, however, they are also very risky so please do your own research if interested in running a masternode.

Each setup is different depending on the cryptocurrency in question.  Generally, you will need to purchase and stake a set amount of that crypto, download and configure nodes before connecting them to the network.  Since you have to stake, or lock up your crypto, an inherent risk involves with masternodes includes the price action of the underlying crypto.  

Being crypto, as you can imagine, there are many different options to choose from.  Some of these options are basically like a mutual fund with stocks in that you can invest in a platform that does all the work for you and spreads out the risk utilizing a number of different master node programs.  These maybe a good jumping in point for beginners like myself and include Yield Nodes, Storage X and Strong Block.  I will also be exploring the presearch masternode since, like many of you, I've been using this search engine for awhile and would love to be a bigger part of this community.  I am not recommending any of these as of yet as I am still in the research phase but will let you know which one(s) I select in the future and will share some comparisons between the different options.

Thanks for reading and please share any experience you have with master nodes in the comments below.