Masternodes are specialized server nodes that facilitate advanced functions on certain proof-of-stake blockchain networks. Running a masternode requires locking or staking a set amount of coins to activate server functions like increased privacy, instant transactions, governance rights, and treasury management.
However, misconceptions around cost, centralization, sustainability, and passive income have created some myths about masternodes. In this article, I debunk the most common masternode myths around their actual design, governance, and real-world performance.
Myth #1: Masternodes Are Only Used for Passive Income
This is false. While masternode operators earn rewards and fees for running the infrastructure, they serve critical network functions beyond just generating passive income. These include:
- Enabling InstantSend, which instantly confirms and locks transactions without waiting for multiple blocks,
- Facilitating PrivateSend that anonymizes payments by mixing coins with other masternodes,
- Voting on Treasury Funds, and
- Coordinating Blockchain Security by mitigating 51% attacks.
Without this masternode infrastructure, many projects could not support instant, private, or governance-based transactions. The rewards exist to incentivize providing these utilities.
Myth #2: Masternodes Are Centralized
Early masternode projects had issues with the centralization of nodes among a few large token holders. But newer governance models and hardware requirements have diversified ownership.
For example, according to Dash Ninja stats, there are currently 3,016 Dash masternodes controlled by thousands of owners across various holdings. New proposals like chain locks and Long Living Masternode Quorums have introduced further decentralization over time. Delegated Proof-of-Stake projects have also pioneered new models for spreading and rotating masternode power among stakeholders.
Myth #3: Masternodes Will Eventually Fail from Saturated Competition
The market dynamics of limited slots and increasing hardware costs counteract the oversaturation of nodes. Masternode collateral also rises or falls with coin value, stabilizing ROI. For example, after 5 years, Dash masternodes still earn 6-8% annually despite surging hardware expenses for servers. Synthetix also has resilient staking returns after several years by dynamically adjusting fees based on demand for minting synthetic assets. Well-designed masternode economics sustain themselves.
Myth #4: Masternodes Have No Accountability
While a valid concern for early infrastructure projects, governance evolution has increased accountability and transparency measures. Many masternode projects publish statistics on budget expenditures and performance metrics allowing coin holders to assess their value.
Myth #5: Managing Masternodes is Too Complex
While masternodes are more involved than just holding coins in a wallet, shared hosting services like Flits exist to manage node deployment, hosting, updates, and sharing arrangements. This makes masternodes accessible to non-technical users.
Conclusion
As outlined above, many perceived faults of masternodes like excessive pay, centralization, and lack of responsibility originate from outdated understandings or isolated cases rather than current realities. Improved crypto-economic models, hardware requirements, and transparency measures counterbalance earlier issues with sustainability, distribution, and accountability. Judging modern masternode infrastructure based on myths leads to false conclusions. The vast and rising economically-secured infrastructure powering instant, private, and decentralized transactions for millions of users daily speaks for itself.
