You can make money with altcoins in three ways. One is to sell altcoins you bought on the coin market for a profit. The second is to engage in mining activities, which includes verifying transactions and seeking out reward tokens for finding blocks. The final way is to serve as a masternode for a participating altcoin.

Masternodes serve as modifying agents for efficiently processing transactions on an altcoin network and as stabilization against potential growth or liquidation. In exchange, masternodes are offered perks such as special privileges and a share of the network's rewards.

This guide explains what masternodes are and why they are important.

What are Masternodes?

Being a miner for an altcoin can take as little as having a desktop computer with a powerful enough graphics card running the right software. For a certain class of currency altcoins including DASH, ION, PIVX, and VCash however, setting up a proper server with a proof-of-stake in the network allows for special privileges on the network. Besides hosting the blockchain, these servers constitute the functional backbone for their networks and allow special services to run, such as direct send and private transactions. In turn, the network must incentivize the continued operation of these servers.

These servers are referred to as masternodes. Every altcoin approaches their masternodes differently, with different return-on-investment and payout rates. It is difficult to say if it is generally worthwhile to become a masternode owner. However, all masternodes are sources of passive income.

Typically, a masternode operator is rewarded a share of every block reward for the altcoin as compensation. Some altcoins, however, pay when the block is generated, while others wait for a single daily payout. The largest masternode currency, DASH, has an annual payout of 7.54 percent, and requires a minimum held investment of 1,000 coins (which, at a price of $496.47 at the time of the writing of this article, means that becoming a masternode operator costs a minimum of $496,472.00 - not counting server costs).

Conversely, SagaCoin, has an annual ROI of 683.92 percent and a minimum investment cost of 2,500 coins ($3,521.72 at $1.41 per coin). These investments, or pseudo-"proof-of-stake," must be "locked away" - held for as long as the operator chooses to run a masternode on a wallet stored on the masternode server. It should be noted, however, that there are "proof-of-work" masternode currencies that reward aggressive transaction processing and do not require such large investments to be held.

Why Invest in Masternode Currencies?

Masternodes offer currencies unique benefits:

DASH: DASH masternodes allow users to use "PrivateSend" and "InstantSend" - transaction prioritizing devices that randomize transmitter's coins with the masternode's held coins for privacy's sake or allow for near-instantaneous processing of transactions, respectively. Masternodes, in exchange, are given exclusive voting rights on treasury and governance decisions on the network.
PIVX: For 10,000 coins, you can start a PIVX masternode, which the network itself looks at as future "commodity options." Like DASH, PIVX uses masternodes for coin mixing and instant transactions and reward masternodes with exclusive voting.
Stratis: Stratis requires an investment of 250,000 coins. This is needed to ensure that there are enough resources (as in transaction processors), on the network for the coin to properly function with a quick processing time.
InstaCash: InstaCash uses their masternodes for their zero confirmation transactions (SwiftX) and their coin mixing service (ZeroCoin). Masternodes are secured with a 10,000 coins investment.
Bitcoin Lightning: With a 75 percent masternode stake in block rewards and 90 seconds block time, this coin offers some of the best masternode staking currently available. Like most other masternode coins, Bitcoin Lightning uses masternodes for coin mixing and instant transmissions.
ZCash: ZCash allows for "coin minting," which is a repeatable coin mixing that allows for anonymization of coins. ZCash's masternodes - known as "Znodes" - requires a 1,000 coin investment in exchange for a share of 30 percent of the block reward.

Masternodes can represent a passive income opportunity without a need to sell your stake. This is, of course, risky, as you would not be able to sell off your investment should the coin price drop. However, if you believe that the coin is prone to continued future growth and you have enough resources to actually start a masternode, a masternode can create an investment option that beats most bank products in regard to ROI.

You can track masternode ROIs on sites like masternodes.online and masternodes.pro. As always, only invest what you can afford to lose and take the needed time to fully research all investment options.

Want to learn more about investment options in the world of New Finance? Read Bitcoin Market Journal and learn to invest like a pro!