Masternodes vs. Staking Rewards: A Comparative Analysis

Blockchain spelled out with wooden blocks.

Bitcoin Market Journal has analysed the expected returns of operating a masternode and compared them with expected staking rewards of leading PoS coins to provide insight into which type of digital asset investment method is potentially more lucrative.

You can find the results of our comparative analysis below.

PoS vs. Masternodes

Proof of Stake has become a popular option for investors seeking to maintain a steady stream of income from their holdings.

PoS performs the same functions as Proof of Work (PoW) without the hardware and electricity required to demonstrate proof of work. Both algorithms determine and assign nodes, verify transactions, and create new blocks. The key difference rests in the method of validation. Proof of Stake uses the coins themselves to validate transactions in order to earn the reward. Investors must “stake” their token of choice to allow the data validation process to occur.

Masternodes exist separately from PoS. Although they work to accomplish the same task, masternodes cannot validate transactions alone nor can they create new blocks. It is best to envision Proof of Stake as the core software that then requires an API plug-in to ensure total security to protect the network. Masternodes will work to remove potentially harmful blocks that could jeopardize the network.

Similar to PoS, anyone can run a masternode on a given network, but the barriers to entry are much higher. Users must submit a certain number of tokens as collateral for the network, which can sometimes amount to thousands of dollars.

For example, Zcoin (XZC) requires that users hold at least 1000 tokens, approximately $5,000, to operate a masternode. Compared to the minimum of 1 token for PoS, and it is obvious why few people have the capability to reap the benefits of masternodes. Other factors such as time spent in the same account and access to Virtual Private Servers should be taken into consideration as well.

Masternode vs. PoS Expected Yields

 DescriptionRewards ProcessConsensus AlogrithmMinimum ValueProof of Stake ROIMasternode ROI
LiskLisk is a great project if you need an easy-to-use blockchain platform for business or developer projects. The application-based platform wants to give users the ability to quickly and easily build decentralized applications in its environment. You can build sidechains through Lisk, which offers the ability to create features unique to your own blockchain, but still, remain independent of other chains. Lisk has shown that they're very serious about being in the blockchain industry, which is why we like it as a staking project.For every block generated new LSK tokens are created to reward those who are forging. During the first year, forging rewards are set at 5 LSK per block with the reward being reduced by 1 LSK every 3,000,000 validated blocks, concluding at 1 LSK after approximately 5 years.Delegated Proof of Stake200 LSK (minimum to vote)2.75%N/A
OntologySimilar to other projects on this list, Ontology targets users in an enterprise setting. Ontology builds blockchains that support both private and public blockchains. This gives corporations flexibility and access to other technologies as they become available. The project is very similar to NEO. However, it tries to give its users the opportunity to store data in both public and private environments.A total of 5 ONG Gas tokens per block are equally distributed to all ONT holders.Byzantine Fault Tolerance1 ONT2.97%N/A
ArkArk sets itself apart as the "all-in-one-blockchain-solution." With its smart bridge ecosystem, Ark wants to address the scalability and interoperability problems that plague the blockchain world. With smart bridging, blockchain platforms can easily connect with one another. With its technology, Ark has made itself one of the most unique projects in the blockchain community, which is why it ranks at the top of the list of the best staking coins to look into.The 51 most voted Delegates are able to forge new blocks. Majority of rewards are shared with their voters.Delegated Proof of Stake10 ARK10.00%N/A
DashIn a technical sense, Dash is not a PoS coin. It actually runs masternodes and was one of the first blockchains to feature them back in 2017. Dash has over 5,000 masternodes facilitating efficient transactions over the network. Dash is known as one of the easiest coins to earn "PoS interest" due to its simple start up requirements.A total of 45% of all block and transaction rewards are specifically designated for the Masternodes.Proof of Work + Masternodes1000 DASHN/A6.30%
PIVXThe PIVX coin is forked from Dash and stands for Private Instant Verified Transaction. It's anonymity based and follows the same Zercoin protovol as ZCOIN. Similar to its predecessor, PVIX runs fast and secure transactions along with masternodes.PIVX masternode operators receive either 33.33% or 50% of the block reward depending on whether a block is found by a PIVX or zPIV staker.Proof of Stake + Masternodes10,000 PIVX9.42%9.80%
ZCOINZcoin is an open source privacy project that uses zero-knowledge proofs via the Zerocoin protocol. Zcoin gives only the sender and receiver know the details of the transaction since transaction histories are not linked to the coins. Zcoin operates on a multi-node modelZcoin’s Znodes can earn their operators some 30% of the block reward.Proof of Work + Masternodes1000 ZXCN/A13.50%

To compare expected masternode returns with PoS staking yields, we have analysed a sample set of leading digital assets.

Our analysis shows that masternodes can potentially deliver a sizeable “ROI” – often greater than that of PoS. Having said that, it is important to note that ROIs vary from asset to asset, and that there are relatively high barriers to entry for running masternodes. Users have to purchase enough tokens for collateral, establish a VPS or server to host the wallet 24/7, dedicate an IP address, and possess enough storage space to save the blockchain.

Assuming all those requirements are met, operating a masternode seem to finish ahead of staking PoS coins as a passive income investment option for digital asset investors.

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