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So you’re into blockchain, cryptocurrency, and the decentralised future of the web?
You might’ve heard of masternodes, which are every cryptocurrency enthusiast’s favourite way to earn passive rewards.
Well, meet the big brother of masternodes — Service Nodes. Service Nodes can do everything masternodes can and more!
Full nodes
In a blockchain, a network of nodes hold a record of all the transactions made in a particular cryptocurrency. This record is called the ledger. Nodes which store and validate the ledger are referred to as full nodes.
Full nodes come to a consensus about the state of the blockchain by comparing transaction records and making sure they’re all the same. If they’re not, the odd node out is ignored and discarded from the network. This is important because it stops rule-bending and malicious activity like fake transactions.
Masternodes
A masternode is a full node which stakes a certain amount of cryptocurrency, and is rewarded for doing so. Staking helps the network by reducing selling pressure, so masternodes are incentivised with cryptocurrency rewards. The resulting reduction in circulating token supply can also help to increase the value of a given cryptocurrency. Higher-value rewards help masternode operators offset the costs of operation, while also inspiring the creation of more masternodes. These financial incentives also help to ensure masternodes behave honestly.
Service nodes
A Service Node is a masternode which provides utility beyond simply storing and validating the ledger.
Service Nodes can perform actions which benefit the blockchain directly, such as checkpointing, or completely different things like routing messages.
Service Nodes can be used to create real-life use cases for blockchain. For example, Service Nodes can be used as nodes in an onion routing network, like Lokinet. This brings additional value to the network as a whole, and increases the long-term demand and viability of the cryptocurrency powering the blockchain.
Service Nodes can perform actions which benefit the blockchain directly, such as checkpointing, or completely different things like routing messages.
Service Nodes can be used to create real-life use cases for blockchain. For example, Service Nodes can be used as nodes in an onion routing network, like Lokinet. This brings additional value to the network as a whole, and increases the long-term demand and viability of the cryptocurrency powering the blockchain.
WHY RUN A SERVICE NODE?
There are several reasons you might want to run a Service Node.
Financial
Service Nodes receive rewards in the form of cryptocurrency. This is similar to earning interest from a bank savings account. Banks reward you with interest, based on how much you save. Blockchain projects reward you with cryptocurrency, based on how much your Service Node stakes. And just like earning interest, Service Nodes generally require very little work once set up.
Altruistic
If you believe in a blockchain project — what it’s doing, why, and how it’s doing it — running a Service Node can help to protect the project’s network from things like Sybil attacks.
Like giving blood, or donating to charity, you might not run a Service Node to receive anything in return. Running a Service Node makes a positive contribution to the community of your chosen project.
Like giving blood, or donating to charity, you might not run a Service Node to receive anything in return. Running a Service Node makes a positive contribution to the community of your chosen project.
Community
Running a Service Node is a great way to be a part of a blockchain project community. Through supporting an important and integral aspect of the project, running a Service Node connects you with other like-minded people, providing a sense of shared purpose and belonging.
There are loads of different blockchain projects out there. Which community is right for you depends on what suits you best.
There are loads of different blockchain projects out there. Which community is right for you depends on what suits you best.
Environmental
Service Nodes do require some energy resources to run. However, they are still considerably more efficient than cryptocurrency mining technology. This means less impact on the environment, and lower electricity costs than cryptocurrency mining — Service Nodes are a win for blockchain projects and the environment.
For an in-depth look at the difference between Service Nodes and mining, as well as Proof of Work (PoW) and Proof of Service (PoS) consensus mechanisms, click here.
For an in-depth look at the difference between Service Nodes and mining, as well as Proof of Work (PoW) and Proof of Service (PoS) consensus mechanisms, click here.
SETTING UP A SERVICE NODE
While the specific requirements for running a Service Node vary, here are some common basics.
Server
A server is required to host your Service Node and run its software. You can purchase your own, but using a Virtual Private Server (VPS) is much more cost-efficient.
Using a VPS means you don’t have to worry about the logistics (or cost) of keeping a server online. Instead, the VPS provider, such as OVS, will take care of it for a small fee.
Evolution Host even allows for you to pay for your VPS using LOKI — so you can use some of your rewards to keep maintaining your Service Node!
Using a VPS means you don’t have to worry about the logistics (or cost) of keeping a server online. Instead, the VPS provider, such as OVS, will take care of it for a small fee.
Evolution Host even allows for you to pay for your VPS using LOKI — so you can use some of your rewards to keep maintaining your Service Node!
Software
You’ll need specific software to run your Service Node, you can read detailed instructions for downloading and setting up a Loki Service Node here. You’ll also need to download the Loki wallet software.
Typically, you’ll also need a good understanding of how to use the command line (including running a Secure Shell, or SHH) to log into your server.
Typically, you’ll also need a good understanding of how to use the command line (including running a Secure Shell, or SHH) to log into your server.
Cryptocurrency
To run a Service Node, you must stake (lock up) a certain amount of cryptocurrency for a period of time. Exactly how long, how much, and of which cryptocurrency, depends on the blockchain project you’ve decided to run a Service Node for. Some are static (fixed amounts and durations), and some are dynamic (the amount and duration shift according to various factors).
The staking requirements for a Loki Service Node can be found here.
You can attain Loki through OTC or P2P trades, or using an exchange like TradeOgre or KuCoin.
The staking requirements for a Loki Service Node can be found here.
You can attain Loki through OTC or P2P trades, or using an exchange like TradeOgre or KuCoin.
Pooling
If you don’t have enough Loki to meet the current staking requirement, it’s worth considering pooling. Pooling involves combining your Loki with one or more others to reach the total staking requirement. The cost of running a server can be shared proportionate to each person’s contribution to the staking requirement — and so can the rewards (minus a masternode operator fee).
You can stake via an open pool using the Loki wallet software! Here is a full guide on how to do it.
SERVICE NODE REWARDS
Let’s face it, we all like receiving rewards. It’s one of the major perks of running a Service Node.
Earning Rewards
In most blockchains, rewards are automated by the network using a queue system. When you start running a Service Node, you’ll join the back of the queue to receive rewards. When the Service Node at the front of the queue receives its reward, it goes to the back, and you’ll move forward. Eventually, your Service Node will be first in line and you’ll receive your reward. Your Service Node then heads to the back of the queue, and the process starts all over again.
Frequency
When you reach the front of the queue, you’ll receive your reward immediately in your Loki wallet. How often you reach the front of the queue depends on how long the queue is, and the block time — which is approximately 2 minutes per block.
Reward Size
The size of a Service Node reward varies between blockchain projects. Some are small, some are large, and some may vary over time based on emission curves or other economic frameworks. Check out this rewards calculator for Loki Service Nodes to estimate your LOKI rewards.
Calculating Rewards
To calculate your potential Service Node rewards, divide your net profit by the amount of your stake.
For example: If you receive a Service Node reward of 50 coins, and your masternode stake is 5000 coins, your reward percentage is 1% (50 ÷ 5000 = 0.01 or 1%).
Of course, there are also other costs (i.e. server, electricity, internet) which you should also take into account.
For example: If you receive a Service Node reward of 50 coins, and your masternode stake is 5000 coins, your reward percentage is 1% (50 ÷ 5000 = 0.01 or 1%).
Of course, there are also other costs (i.e. server, electricity, internet) which you should also take into account.
Service Nodes vs Mining
Mining is an alternative way to earn rewards from blockchain projects. The size of the initial capital contribution required to mine is generally much higher than to run a Service Node. It involves a major upfront cost — hardware. This hardware will depreciate over time, making it difficult for mining rewards to outweigh the costs.
Service Nodes also require an initial capital contribution, but that contribution (the staking requirement) is locked away, as opposed to being spent — and it will be available to you again in a short amount of time if you need it. You can quickly get back what you initially put in, along with your rewards, by unstaking. Plus, since the initial cost takes the form of the cryptocurrency itself, if the crypto goes up in value, so does your stake.
There are many great reasons to run a Service Node — and many things to consider before you get going.
Service Nodes are the building blocks of the next generation of blockchain technologies. They secure the blockchain, and enable new online services that provide unprecedented privacy, security and reliability.
If you’re interested in running your own Service Node, it’s as simple as choosing a project, spinning up a VPS and staking some cryptocurrency. Just like that, you’ll be a part of the future of blockchain — and you’ll be rewarded for your part in it, too!
If you need more help or want to chat about running a Service Node, come and chat with us at the official Loki Service Node Telegram community