Masternodes play an important role in validating transactions and enabling key services on many cryptocurrency networks. Some projects have implemented decentralized governance mechanisms using masternode voting to allow the community to guide future development and policies.
For the uninitiated, a masternode is a full node server that provides enhanced services to a blockchain in return for financial rewards funded through a portion of the block reward.
Although these specialized services vary from one blockchain to another, they typically include duties like facilitating instant and private transactions, supporting blockchain privacy features, participating in block validation as part of the consensus mechanism, and voting on protocol governance decisions.
While any node can perform basic validation, incentivized masternodes take on critical extra duties to strengthen the ecosystem.
Masternode Voting Mechanisms
There are two main methods masternode coins use to implement voting – direct voting and representative/delegated voting.
In this case each masternode receives voting rights proportional to their collateral stake. Masternode operators cast votes directly from their nodes on the blockchain while using the node’s dedicated identity key to secure voting.
Otherwise known as delegated voting, masternodes elect “representatives” to vote on their behalf this method. Representative nodes consolidate groups of votes rather than direct democracy. This approach tends to improve voter turnout compared to direct votes.
In general, both approaches align incentives between masternodes operators and the coins they support.
Case Study: Dash Governance
Dash provides one of the most robust examples of masternode voting for decentralized governance. Key facts:
- Roughly 3,500 masternodes collateralized by 1,000 DASH each. Less than 900 masternode operators are registered on Dash Central, a masternode monitoring and governance platform for Dash.
- Masternodes operatives can delegate their votes to an active representative for more efficient voting
- Each masternode operator votes for one representative node
- 10% of masternodes must vote “yes” to validate results
- Governance rights funded by 10% of block rewards
This pioneering structure has facilitated community governance of Dash for years without major disruptions.
Case Study: PIVX Governance
PIVX leverages direct masternode voting for on-chain governance:
- Around 1,700 masternodes each collateralized by 10,000 PIVX
- Masternode operators directly vote on proposals
- Proposals require 10% quorum of masternodes to vote
- Votes weighted by number of masternodes controlled per operator
- Block rewards fund decentralized governance
PIVX demonstrates direct masternode voting succeeding at smaller scales.
Case Study: Horizen Governance
Horizen utilizes a representative governance model called sidechains:
- Masternodes pledge 10,000 ZEN for eligibility
- Each masternode votes for a representative node as delegate
- The elected representatives comprise the sidechain responsible for voting.
- This condenses full voting into a manageable representative body
- Enables coordination and changes at scale with many masternodes
Sidechain voting provides a hybrid masternode governance approach.
Governance Challenges with Masternodes
Masternode governance comes with some notable challenges including:
- Plutocracy risks if single entities run too many masternodes
- Low voter turnout apathy if participation incentives weaken over time
- Difficulty passing controversial changes that disadvantage masternodes
- Transaction delays if too many masternode votes flood the network
- Complex voting support and infrastructure beyond running nodes
Progressive masternode projects proactively address these issues through vigilant governance processes.
The Future of Masternode Governance
As masternode technology and incentives mature, innovations could include:
- Improved identity mechanisms to provide further anti-sybil assurances
- Reputational scoring blended with staking weight to balance plutocratic risks
- Decentralized conference calls and messaging to enable high-bandwidth masternode communications
- Hybrid consensus schemes that consolidate masternode influence into representative bodies
- Interoperability between masternode governance systems across blockchain networks
Masternode coins could lead the way in developing decentralized governance models that sustainably balance participation, security, performance, and flexibility.
Masternodes offer a unique primitive set to support advanced blockchain functionality including decentralized on-chain governance. By combining crypto-economic participation incentives with infrastructure responsibilities, masternodes can facilitate community-driven decision-making grounded in both robust networks and engaged voters. As protocols evolve masternode mechanisms to mitigate risks like plutocracy and maximize voter participation, masternode coins seem poised to deliver increasingly sophisticated and resilient models for collective coordination without centralized intermediaries.