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So as I’m sure you’re all aware Bitcoin and Cryptocurrency mining is back with a vengeance. I can’t spend more than five-minutes on social media without seeing an offer of real mining. Some are genuine and others trying to piggy back on the explosion in popularity that mining has enjoyed of late with unrealistic ROI expectations and unsustainable compensation plans.
But will it last? And if not; what’s the alternative?
Firstly, let’s take a look at mining. For those of you reading this that are unaware of how mining creates wealth; mining is how Bitcoin and other Cryptocurrencies are made. Miners effectively use computer power and special software to solve very complex math equations to unlock block rewards of whatever currency they’re mining. They’re responsible for confirming the transactions sent over the blockchain for which they receive fees and this is known as POW (Proof of Work).
The two best ways of mining are GPU mining (graphics processing unit) which are basically using computer graphics cards and ASIC mining (application-specific integrated circuit) which are often only customised to one particular coin and can’t be changed. There’s a bit of a battle raging between them for supremacy. Saving this from turning into a lengthy dissertation on mining; it’s a case of less power and more choice over more power but fewer options.
Both options can prove very costly to produce Bitcoin and other Cryptocurrencies. Depending on where you live power costs can make mining bitcoin virtually impossible for the average investor with a rig set up in his garage but big companies luckily are on hand to offer assistance in the form of cloud mining.
However, as mining difficulties increase and the cost of power forever going up many believe the mining bubble will burst as it becomes less profitable.
So what are Masternodes?
Masternodes are effectively servers or computers that process the transactions on the blockchain to gain rewards. Unlike the mining they don’t use the proof of work method but POS (proof of stake). You need to stake the required amount of coins to have a masternode in any given coin. Staking allows you to join the queue of masternodes waiting their turn to process transactions and win a portion of the block reward.
How are masternodes profitable?
Masternodes can be relatively complex and expensive to run in terms of initial outlay. However, the reward for operating the masternode often makes it very worthwhile to do.
The main benefit of masternodes is those who operate them are able to earn cryptocurrencies on an ongoing basis. This is done without having to get involved in the costly process of mining. Although a masternode can be expensive, it is much easier and often cheaper than setting up and maintaining rigs.
The cost associated with running a masternode are essentially just your stake and server space which you can get for a few bucks a month. There are a number of factors that will impact a masternode operators earning potential though. You are at the mercy of market prices.
Many coins are already switching from POW to POS masternode coins. The biggest contender being Ethereum; which you can read further here. This leading many of the big players on the Crypto scene suggesting that, while mining won’t die out completely, it may be overtaken by masternodes. Some suggesting masternode growth may kill off many smaller mining operators who rely on the transaction fees to keep afloat.
When taking into account the enormous costs and the environmental impact producing the ever-increasing power necessary required for mining, you can understand why masternodes are attracting plenty of attention. Will masternodes become the main driving force in blockchain development? In a green-driven environment; are masternodes a viable, more energy efficient way of moving forward?
Let us know in the comments below.
You can find more articles on masternodes —> Here