Masternodes are an owner-maintained servers, somewhat like full nodes, but with additional functionality such as anonymizing transactions, deleting transactions, and participating in governance and voting.
A node is a computing device that aims to validate blocks and transactions.
Masternodes were initially popularized by Dash in 2014 to reward the owners of these servers for maintaining a service for the blockchain. Dash was the first cryptocurrency to incorporate masternodes.
It acts as a second layer of the Bitcoin blockchain and tries to take the pressure off the nodes.
Considered full nodes, they perform the basic functions that nodes do, as well as additional features, and are rewarded for performing these tasks.
Masternodes were created in response to the problem of a decrease in nodes. The increasing costs and technical difficulties that result from running nodes often lead to a reduction in full nodes.
This can be problematic because full nodes can affect profitability. It also leads to a reduction in the overall efficiency of the system.
The reward that masternodes get is similar to the concept of Proof of Work, abbreviated as PoW.
Masternodes provide advanced features like PrivateSend and InstantSend. Masternodes are backed by a cash guarantee. They receive regular contributions for the work they do.
Masternode operators can vote each month on a maximum proportion approximately equal to 10% of the block reward to fund projects that contribute to the development of Dash.
Masternodes are considered sources of support for the blockchain. For this reason, they are also often referred to as “bond validation systems”.
Masternodes are becoming more and more important as they avoid congestion of blockchain systems and aim to reduce transaction processing time.