With the rise of lightning network usage, a confusion has been present with some people regarding the difference between what a masternode is and what it does compared to what the lightning network is and what it does. This article will cover the different “Instant transactions” verifications as briefly as possible.
What are Masternodes?
Masternodes are full nodes which lock in a certain amount of collateral in order to “prove” to the network that it is valuable and ready to perform certain tasks, such as InstantSend (as an example). In case a masternode tries to lie or manipulate the network, the majority of the coins locked up as collateral are taken away as punishment.
When a user wants a transaction to be confirmed instantly, a select number of masternodes (chosen randomly) create a quorum to vote on the validity of the transaction. If all the masternodes agree that the transaction is valid, the funds (Input to the network) are “locked” and a message is broadcasted to the network that proves that the transaction is valid. In Dash’s network as an example, InstantSend is enabled by default, meaning users are using the feature without knowing about it.
All of this is made on-chain. This is a very important detail that most people overlook. It will become clearer at the end of the article in its conclusion.
What is The Lightning Network?
Lightning networks on the other hand are nodes which are designed to work “outside” the main chain, requiring a transaction fee every time you need to fund the wallet on that node in order to create payment channels with other lightning nodes. By using a lightning node, your transactions (from this node) are confirmed instantly since there are no blocks on the off-chain network. The only people who make the consensus are the receiver and sender, thus not needing any additional confirmations per transaction. One of the most appealing aspects of this network is that you don’t pay any transaction fees when transacting directly with the lightning nodes.
Conclusion
Both, networks which have masternodes AND the ones which support the Lightning Network Protocol allows users to send Instant Transactions though each one has its pros and cons.
InstantSend transactions are on-chain, meaning you don’t need to send to your lightning node first then to the person you want to transact with, and are extremely easy to do and implement by developers. On the other hand you need to pay an extra fee in order to use this mechanism (Most networks, excluding DASH require an additional fee for this feature).
Lightning transactions are also instant, but you don’t need to pay a transaction fee when sending to nodes you already connected to. You can make 1,000 transactions and pay nothing in exchange. The caviar in this situation is that you need to connect to an on-chain full node (Bitcoin full node as an example) in order to properly use the lightning network. The other con is that lightning network is not user-friendly yet. Lightning network was released on Bitcoin’s main net last year, which in the Technology sphere is not that much. The user experience here is poorly designed and is mainly focused on “nerds” and “geeks”. There are solutions like https://tippin.me but you don’t have full control of your funds. Just keep in mind that lightning network was created to transact somewhat small amount and not millions of USD.