• Danny J. C.

Passive Income in Crypto

Introduction


A Blockchain is essentially is a public ledger (decentralized register) for every transaction that has been carried out. It's providing bookkeeping service, computer accounting, 'verifying transactions' using different devices computing power. Cryptocurrency is the fuel reward and incentive.


Mining, the extraction of valuable minerals or other geological materials from the earth.... at least until January 3, 2009... after that, the term mining was re-designed by 30.000 lines of code, spelling out the beginning of the first Blockchain and its Cryptocurrency #Bitcoin.


When a Distributed Ledger (Blockchain) transaction is initiated, the transaction data is fitted into a block, and then duplicated across multiple computers or nodes on the network, globally. The nodes are the administrative body of the Blockchain and verify the legitimacy of the transactions in each block. To carry out the verification step, the nodes or miners would need to solve a computational puzzle, known as the Proof of Work (PoW) problem. Once a block of transactions has been verified, it is added to the Blockchain, and the first miner to decrypt each block transaction problem gets rewarded with cryptocurrency coins.


With Proof of Stake (PoS) the utilization of energy, to answer PoW puzzles, is much lower because a PoS miner is limited to mining a percentage of transactions that is reflective of his or her ownership stake. For example, a miner who owns 3% of the total number of a PoS coin available, can theoretically mine a maximum 3% of all the blocks.


Both PoW and PoS provide rewards, cryptocurrency coins, for the facilitated computing work. Therefore, participants in the network, and moreso nodes and Masternodes, can provide a great source of passive income. Rewards are always earned, with every transaction, selling or buying, and therefore somehow prone to market volatility. However, the coins earned still have a price point in order to actually cash-out. Still, instead of investing in 1 coin, which doesn't give you anything in return, holding it till the sales target price is hit might be inefficient way of investing, if one could earn coins by staking his investment (PoS).


What exactly is a Masternode?

Put simply, a Masternode is a server with a full digital copy of the Blockchain. It is supporting and accountable to a minimum required level of performance by the Blockchain’s governance mechanism to perform crucial functions on the network.


In order to incentivize compliance on a decentralized or distributed network, a Masternode operator must hold a certain level of collateral of the cryptocurrency. A Masternode can also help the network to validate private or direct transactions. The Masternodes are compensated for the services they perform on the network through 'rewards’, generally payouts in the networks own cryptocurrency.


Tasks that the Masternode has to perform:

  1. Transactions completion

  2. Improving the transactions privacy

  3. Ensuring that the treasury system and budgeting works as intended

  4. Governance and voting

Masternodes, when compared to simple nodes, are complex in the way they are run. They are also expensive and can take a good investment to be up and running.

How to host a Masternode?

Running or hosting a Masternode is not easy. You need to have some technical knowledge on how to use Linux commands, how hosting works, static IP and to effectively earn - server computation available.

Then how much can you earn from a Masternode?


In general, your earnings depend heavily on the coin that you choose and also the price of the coin at a given time. As a Masternode operator or fund, your main job would be to find coins that are profitable, but more importantly choosing projects wisely and carefully with good fundamentals. Only up n running projects, or projects with good customer/ user base and network will produce transactions and therefore rewards. A carefully carried-out due diligence is vital to receive good ROI results.


Masternodes, most of the time, works through staking (Proof-of-Stake, PoS) which means that you will eventually see an increase in your holdings and potentially profit after you do staking for an extended period. However, the actual gain will depend on the USD returns / price of the specific coin, which can swing wildly considering that crypto market is extremely volatile. Operators and funds often provide hedging mechanisms to achieve optimal results.


Masternode earning depends on three factors:

  1. The coin (project) your select

  2. How that coin (Blockchain) setup under the masternode concept is defined

  3. How the coin is going to perform in the future

  4. The liquidity of the coin


Masertnodes.online gives good statistics including other information such as price, minimum coin required to start a Masternode and their trading volume. Best example to give is Dash. With a minimum required staking of 1,000 Dash coins, at current price, an investment of approx. $165,000. Not included the server, IP and setup costs.

“If you don't find a way to make money while you sleep, you will work until you die” Warren Buffett

Sources: Chainfund, Masertnodes.online, Crypto Adventure, IWS FinTech