#4 - Incentivized Infrastructure and Masternode Network

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Hello, My name is Evan Duffield

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And this is a video series about Dash.

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And in this video, we're going to be covering

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the incentivized infrastructure of the Dash

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Network. And how our Masternodes actually work.

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So why would you incentivize the infrastructure

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of a network like Dash?

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And, you have to go back to a centralized corporation.

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which has infrastructure, and as they grow

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their infrastructure gets larger and more costly to maintain.

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With decentralized projects, the infrastructure oftentimes

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is at the expense of the users or companies that are

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utilizing the network. And, this simply means that as costs

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rise, the people that are running the infrastructure can

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actually get squeezed out. And then, they'll stop running

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the infrastructure. And the network weakens over time.

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And so we provide incentives to run the infrastructure

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which makes it more robust and scalable.

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Bitcoin is not economically efficient. And, it's actually broken.

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The issue is, that if you look back in it's really early days

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it started out with about 100,000 full nodes.

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And then more recently, it's fallen to like 6000 full nodes.

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The spare capacity for the network is also running out

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and if they do increase the capacity of then network,

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they'll even squeeze out more of their infrastructure.

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Because the volume of the network determines how

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much it costs to actually run one of these servers on their network.

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So if the transaction volume rises because they lift the limit,

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then people actually get charged more for the bandwidth

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on the servers that they're running voluntarily for the network.

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So what about Dash's self sustaining network?

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By compensating the people that are running

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the infrastructure for the network, we actually have made a

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high performance network built on top of the

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line hardware, and that has high availability for the users

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of the network itself. And this can actually scale with the network

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as it grows because as it grows, the profit will go up for those

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that are running these specific services for the network.

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The Masternodes also do things separate from providing

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the core services to the network, like syncing and propagation.

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And they do things like providing the transaction technology

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off-chain privacy and our Decentralized Governance

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and Budgeting system.

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So they are a core feature of the Dash infrastructure.

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If you look at the graph on the left, you can see that

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We've had a continuous rise of our infrastructure

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over the past year and a half since we've introduced

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the incentivized program of the Masternode Network.

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And we can actually tweek out these numbers if we

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wanted it to be 6000 or 12,000 or 24,000 or even 100,000

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there are ways to do that

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and we know exactly how all of that works and can tweek

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it out whenever we need to in the future - just using

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some basic economic principles. Masternodes also

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enable all of the fancy features we see in Dash.

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Such as the Decentralized Governance and Budgeting Program,

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which then allows the Virtual Corporation to function efficiently

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and to pay for all of the expenses that are required for a normal

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company to operate.

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Here we can see that, in a two tiered infrastructure,

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you have two types of nodes that are on the network.

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But they're doing the same things. Except the second tier can do

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different things than the first tier.

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And then Bitcoin just has one type of node on it's network.

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and they're voluntary and unpaid and whereas ours are paid

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and incentivised so that the network can scale.

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On Bitcoin they run on a variety of hardware all around the world

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with various uptimes, and you know, there is no requirements of

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the hardware. With ours, we can require specific storage amounts

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for the network, we could require specific CPU, we could require

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all sorts of things and then actually using proof of service, we

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can test those things to make sure that they're actually providing

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what they said that they would provide, and if they don't provide,

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they don't get paid. And this also allows us to have really quick

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software updates. Because you have to run the newest software

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on your Masternode to get paid for what you're doing. And this means

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the whole network is usually on pretty much the same software -

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the same time. Anyone can actually run a Masternode.

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And Masternodes are paid from the mining block reward.

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And so in our network we take 45% of the block reward and

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give it to the Masternode Network for infrastructure costs

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then we take 45% of it and give it to the miners

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for the security of transactions, and then we take

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10% of it, and that is for the Virtual Corporation to function

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efficiently and to pay for things that come up.

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The more Masternodes there are, the safer the network is

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because a lot of the security features of the Masternode

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network require.... The more Masternodes there are, the safer the

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network actually is and the network uses probabilities to protect

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itself. Because of the 1000 Dash that's required to start a

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Masternode, we can insure the safety of lots of different features

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on the network

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They also reduce price volatility because Masternodes can't

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sell their coins and run a Masternode. And so lots of the coins

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are out of the supply and all of the commerce takes place

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in the last few percent of our currency. Well what's

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required to start a Masternode? First you need 1000 Dash

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and this is essentially kept in an offline wallet and very

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rarely brought online to start the Masternode with.

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It also requires that you have a full node operating

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and that you designate that as your Masternode.

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And then, as you're running this full node, it automatically

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provides all of these fancy services that Dash has.

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But what about the economic theory behind the network?

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Because we have a pool of money available for the

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Masternodes to share, we have an economic balancing

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act that's going on. If more nodes come on to the network

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at any given time, it means the profitability is reduced,

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and if the profitability is reduced, it might get

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too low for Masternodes to operate efficiently, and then they

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might drop off the network. And then as it goes lower,

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it might get too high, so that it becomes very attractive again.

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And this is the continuous balancing that goes on the network

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Well, so what happens when transactions increase?

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Transactions increasing would involve a lot of users coming

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into the ecosystem, which means they're bringing money into the

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ecosystem. If they bring money into the ecosystem, it means

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there is price appreciation, and that price appreciation is

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actually resulting in higher proffits for the Masternodes

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themselves. And so over long periods of time, the

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profitability of our infrastructure is solid and can scale.

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We use a bond model to describe the economic

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theory behind the Masternode Network.

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Generally when investors look at bonds, they judge

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the amount of risk for the individual company or

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country that's issuing the bonds. And the

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perceived risk is actually the company or country

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defaults on their debt. Which would mean that

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the investor doesn't get paid back. Likewise, with

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the Dash Network, the risk is associated with the

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currency not being as useful in 10 years as it is

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today, or some catastrophic issue with the

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currency itself. And so our current rate of return

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is about 14%, and as less risk is associated with the

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network itself, and people figure out that the network

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is here to stay, then the ROI (rate of interest) demanded will

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be less and less. Because investors will feel comfortable

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putting their money into the system for long periods of time.

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This will result in less ROI, for example, 10%, or 9% ROI per

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Masternode per year. Which also has a couple of other

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benefits to the network. One, it reduces over-all volatility

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of the currency because all of the Masternodes lock up currency

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and so all commerce must take place in the last few percent

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of the currency itself. And so if we have $100 MILLION

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taking place in the last 20% of the currency it means

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there's vast liquidity available within those 22%

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and thus, less volatility. Over long periods of time,

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the Masternodes actually earn less and less money

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so in 5 years they earn 6%, in 10 years they earn 4.4%

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etc.. And this is due to the supply curve. Being that

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Dash is a fixed currency, it's supply slowly declines over

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long periods of time. This is the incentive

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of the Masternode, the Operators and the Core Team

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to be innovative and find other ways for the network

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to make money. And so there will be added on

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services. For example, we could make a decentralized

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exchange, we could make a decentralized stock market

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or a decentralized, for example, we could make things

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like a decentralized implementation of a stock market,

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a Decentralized exchange, a decentralized instantaneously

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converting version of Etherium, or anything that you can imagine.

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As far as we're aware, Masternodes are legal in every country

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and all they really do is provide services to the network

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they're full nodes that are compensated. So there is really

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nothing illegal that could be going on there. They're also

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paid in a cycle. And so they're paid every 5 - 10 days

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depending on how many Masternodes there are.

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Besides this, they make about $30 a month presently.

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And it costs about 5 - 10 dollars a month to run one.

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So that was it for the Dash Masternode and Incentives

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video. In the next video we'll be going over the

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services that Masternodes offer to the network and how

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all of those work in great detail.

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See you over there!