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Consensus Mechanism

Syscoin utilizes a hybrid consensus mechanism that combines Proof-of-Work (PoW) with a Masternode network to achieve security, stability, and fast transaction times. Syscoin is merge-mined with Bitcoin, meaning that miners can mine Bitcoin and Syscoin simultaneously without additional computational requirements. This process enhances the security of the Syscoin network as it can take advantage of the robust computational power that secures the Bitcoin network. The PoW consensus mechanism involves miners using their computational resources to solve complex mathematical puzzles. The first to solve the puzzle creates the next block and is rewarded with Syscoin tokens.

Masternodes

Masternodes are a key component of Syscoin's network, as they play a crucial role in maintaining the platform's functionality and directing its growth and development.  They are responsible for processing transactions and executing smart contracts, a function that aligns Syscoin with Ethereum-like programmability while enhancing efficiency and scalability. Moreover, masternodes help stabilize the network by maintaining a copy of the entire blockchain, thus supporting network integrity and ensuring continuity and reliability.

Beyond network maintenance and support, masternodes play a pivotal role in Syscoin's governance structure. They are meant to push Syscoin to stay true to its decentralized ethos by democratizing decision-making and ensuring the network's growth aligns with the interests of its participants. Masternode holders can participate in the decision-making process, casting votes on proposals for changes or improvements to the platform. This level of involvement effectively turns masternodes into stewards of the network, shaping its future based on their collective insights and preferences.

In total, per Sysnode, there are 2,669 masternodes located globally. The majority of these are considered active, with 4.7% being labeled as “pose banned”. Approximately 290 masternodes are located in North America (US and Canada), with 280 in Finland, 266 in the UK, 257 in the Netherlands, and another 215 in India. It is unclear as to who or what entities are responsible for managing these masternodes. However, what is evident is that these masternodes control a hefty percentage of the network. Over 50% of masternodes have achieved 2.5-year seniority status, meaning that they are absorbing the maximum amount of annual SYS awards, further strengthening their control over the Syscoin network.

Anyone can establish a new masternode by adhering to the staking and hardware requirements. To be eligible for starting a new masternode, an interested party must meet the following criteria:

Masternode Requirements:

Each masternode must have a brand new VPS (Virtual Private Server), a separate BLS (Boneh-Lynn-Shacham) key per node, and owner and voting keys. It's vital that the same BLS Key or Owner, Voting Keys are not used for multiple nodes.

VPS Specifications:

The VPS must meet the minimum requirements - a 64-bit CPU with 2 cores (4 preferred), 4GB RAM (real) minimum (8GB RAM preferred), 4GB swap if less than 8GB real RAM, KVM or OpenVZ (KVM preferred), Linux OS — Minimum Ubuntu 18.04, LTS Ubuntu 20.04 LTS (Focal Fossa) preferred, and 80GB Disk Space (100GB+ SSD preferred).

Staking:

To stake your masternode, you will need to provide exactly 100,000 SYS in your Masternode address, processed through Syscoin Core Qt.

While 100,000 SYS may seem like a significant investment, it equates to just over $12,000 at the time of writing. Thus, it is comparable to applications like The Graph in terms of the cost of becoming a full node.

Rewards and Incentives

Running a masternode also comes with financial incentives. Syscoin utilizes a block reward system to compensate both miners and masternodes. However, the rewards to masternodes are structured in a way that considers not only their participation but also their longevity and dedication to the network.

In the initial protocol, masternodes receive block rewards proportional to their stake and time spent in the network. This rewards setup becomes particularly interesting after the Syscoin network transitions to the Network Enhanced Virtual Machine (NEVM). In this new protocol, the rewards for masternodes get bumped up based on their 'seniority'. For example, masternodes with 1-year seniority will receive increased rewards, while those with 2.5 years of seniority will receive even more.