Crypto Basics Crypto Knowledge

Staking and Masternodes: A Conversation with a Curious ACCOINTING User

A very famous Chinese proverb reads as follows: “If you are planning for a year, sow rice; if you are planning for a decade, plant trees; if you are planning for a lifetime, educate people.” In ACCOINTING we are all about the lifetime. We firmly believe that crypto is here to stay and it is our job to giveaway our knowledge back to the community and help them understand the simplest topics as well as take the time to explain more complex ones.

Alex from ACCOINTING had a very interesting conversation with a customer that for privacy issues, we will keep anonymous and for the purpose of the article we will call Mike. In this conversation, Mike is looking to understand the following:

  • What is the difference between staking and mining?
  • What is the difference between running a masternode and staking??
  • How does staking work?
  • How does a masternode work?

Join us in this conversation…

Mike: Hey Alex! Quick question… masternodes only exist for Dash? And what about staking? You can’t trade those coins for a specific amount of time, no?

Alex: Hi! Thanks for reaching out! No, there are various masternode coins. Masternode is a specific type of staking. The difference between both is that you bond a certain amount of coins and you can setup a masternode.

Alex: there’s around 300 masternode coins but yea the biggest one is dash

Alex: So here’s the difference between staking and masternodes. Staking: anyone with coins can decide to “stake” lockup their coins, and earn a return- meaning you earn say 1% on however many coins that you stake.asternodes on the other hand: You need to have a certain amount of coins (for Dash, i think its 1000 dash), then you lock them up and run your masternode and you become a verifier of the network so the difference is- staking anyone can stake, masternodes you have to have X amount to run a masternode

Mike: For tax principles are they all the same?

Alex: In terms of taxes, masternodes and staking are handled the same.

Mike: Ok. Thanks for clarifying that. Going back to the Dash masternode that you mentioned previously…I can’t move those 1000 dash coins whenever right? I mean they are locked as well?

Alex: Yup. Staking and masternodes are both locked

Mike: Ok

Alex: But staked tokens are easier to unlock

Mike: How?

Alex: With staking there is no “unlock” period, meaning if you want to stop staking you can. With masternodes, there is sometimes a unlock period when you can’t move your coins immediately. As a side note, masternode networks are usually more centralized and staking can be more decentralized because anyone can stake. BTW, just so you don’t get confused- in Tezos they call it baking which is pretty much staking.

Mike: How about these phones that say that they allow you to run your own node is that for staking? Or to create a network for a masternode?

Alex: So running a node is something else. You can run a node for any network – it pretty much just means you are plugging into the network and reading what’s happening. You can run a Bitcoin node as well, essentially each node keeps its own copy of all the information of the blockchain. It then uses that information to validate the network and that there are no bad actors (miners or stakers). 

Mike: So when you run a node, doesn’t mean that you run a masternode?

Alex: Nope. In a masternode, you actually confirm transactions. Think of miners except that they just buy X amount of coins and hold them in the wallet and bond them for a certain time

Mike: Thank you. For a masternode, do you use Proof of Stake to validate transactions?

Alex: Yes, its the same concept, but uses a different consensus mechanism. No need to dive into that though if you don’t feel the need to understand all the technicals.

Mike: I can’t stake Bitcoin right? Like I can’t stake whatever coin I want, no?

Alex: No, you can only stake in a proof of stake network

Mike: Most of them are shitcoins, right? From what I read…

Alex: Yeah. So there’s a big argument of POW verse POS and Masternodes. Proof of work just isn’t scalable, and probably never will be. POS is definitely more scalable, but you can argue that it’s more centralized because a person can just buy a ton of coins and stake them and he owns the network…if that makes sense. In the end, it all comes down to how the token was distributed. Take for example Bitcoin- it was literally just distributed by mining: whoever wanted to mine could. On the other hand, Ethereum- a percentage was sold in the ICO, and the rest was mined and now they are going to move to POS. 

Mike: And what about ICOs?

Now, compare it to a coin that did an ICO for all its tokens- and has POS since the beginning. That is definitely a shitcoin, because whoever could afford the ICO and buy as many coins is now the biggest staker and they are making the most return and runs in the network. At the same time, the network is unsafe, because he is the biggest staker so he can confirm whatever transactions he wants. So the trust in this guy is the same as you trusting the federal reserve in not secretly printing money.

Mike: Got it! Wow…this information should be available somewhere. Anyway Alex: I appreciate you for taking the time to explain it. I’ll check out your app and give you any feedback if I have some. Keep up the good work and the cool attitude.

Mike went on to download the app and later on used our Freemium tax package. Once he was ready, he decided to buy a package for his taxes. We don’t know what made him do it, but I guess this are the only possible explanations: a) he really empathized with our customer support and wanted to show his appreciation or simply fell in love with ACCOINTING. What we are trying to say is that sometimes, even though some people in the crypto are sowing rice, we are here for the long run, and even though this could’ve generated 0 profit for us, our focus and support to the crypto community will remain constant…we are here to stay a lifetime.



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