What is a masternode?

A masternode is a combination of

A masternode operator, this tends to be a human being
Collatera or a bond held in a cryptocurrency which has masternode functionality
A server used as part of the decentralized infrastructure of a cryptocurrency
Masternode rewards, these are the incentives for which masternode operators create a masternode.

The term masternode was first used to describe Dash masternodes, these provided instant send and private send services. The concept of servers providing services to a cryptocurrency network has expanded and these servers are not always referred to in the same way. They could also be typically called nodes.

In this article the term masternodes describes any cryptocurrency which allows the decentralised use of servers, which can generate an income to the owner.

Why do masternodes need a collateral to be created?

Masternodes process transactions on a network, the data passing through this network is encrypted, however there is still room for masternodes to act maliciously. Masternode operators with skin in the game, (the bond) have an incentive to play by the rules.

Masternodes are also called Bonded Validator Systems.

What is a server and why does a masternode need one?

A server is simply a computer connected to a network which provides certain services. Masternodes can be installed on three types of setups.

On a home computer. This computer needs to remain online 24/7
Setup on a self-hire server such as : Blue Host
Using a masternode hosting services such as Dash Nodes [AFFILIATE] or NodeShare

What does a masternode do?

These are some examples of cryptocurrency masternode services and which currency use them.

Privacy related functions
Zcoin, Pivx, Dash,, Monetary Unit

InstantSend
Dash, Crown, Monetary Unit

Hashing
Tierion (Lottery based system) (careful!)

Commerce services (not released as of 21/09/2017)
Syscoin

Cryptocurrency Exchange
BlockNet, Exscudo

Smart contracts
Syscoin, BosCoin

What are the requirements of to operate a masternode?

Each cryptocurrency has different requirements, in terms of bond and computing power of the server.

What is the ROI of a masternode?

The big question!

The ROI depends on the following

The price at which the bond was bought
The block reward or the incentive mechanism
The number of masternodes operating
The monetary cost to host masternodes
The time needed ot host masternodes
The Tax implications of masternode income
The price at which the mined tokens are sold
The final price at which the bond is sold

Some Examples:

Dash
Pivx
Crown

What is the best masternode to invest in?

Masternode systems provide important network services, and they have a genuine utility. However they are also used to create artificial demand for certain coins. Due Diligence is essentially, crucial and a must.

Investigate

What is the utility of the coin, beyond being a masternode?
Where is the demand for the coin coming from other than other masternode operators?
Is the amount of coin needed to operate a masternode fixed?
Are the current masternode operators happy or are they quite vocal about the rewards
System? (Check Slack, Telegram and Reddit)
Are the coin holding centralised or decentralised? (Was there a pre mine or an ICO)
What are the actual returns?
Will the block rewards change in the future?
Can the tokens generated be used to buy useful products?

source: www.investitin.com