Understanding Node Sales: A Simple Guide for Beginners

In a manner akin to fundraising methods for cryptocurrencies such as ICOs and ILOs, node sales represent another widely embraced model for raising capital within blockchain networks. In this article, we will delve into the concept of node sales, paving the way for you to discover this innovative fundraising strategy.

Function of Nodes in Blockchain

Before we explore the intricacies of node sales, let’s take a moment to understand what nodes are and their significance within a blockchain network.

Blockchain operates as a decentralized network comprised of various interconnected nodes. These nodes, which are essentially physical devices like computers, store crucial information, including metadata related to all transactions on the blockchain. By distributing data, nodes enhance security and transparency across the blockchain ecosystem.

There are two primary categories of nodes: Full nodes and Lightweight nodes. Full nodes, as the name suggests, maintain a complete record of all validated transactions, both historical and current. Conversely, lightweight nodes only retain a partial record and can acquire necessary transaction details from full nodes.

What Exactly are Node Sales?

Node sales refer to a fundraising approach utilized by blockchain and crypto projects, where buyers (be they individuals or entities) acquire a license (referred to as a Node License) to operate on one or several nodes in a blockchain network. This process may occur as an initial offering at a network’s launch or as a continuous opportunity for new entrants. Additionally, many projects launching node sales establish tiered pricing structures, which often begin at a lower price point and progressively increase. This strategy creates a sense of urgency (or FOMO — fear of missing out) among participants, leading to rapid sellouts of nodes.

Illustrations of Node Sales

Let’s examine a few successful examples of node sales:

XAI

XAI, a Layer 3 gaming platform built on Arbitrum, conducted its inaugural node sale in November 2023, selling approximately 34,000 nodes and raising $40 million in just three months. XAI rewarded node operators with 50% of their tokens and provided over 1 million XAI tokens to early sale participants as complimentary rewards.

Aethir

The Aethir node sale, launched in March 2024, stands as one of the notable successes in the Web 3 decentralization era. It surpassed the XAI node sales, selling around 73,800 checker nodes and raising $120 million in just one month.

Sophon

Sophon, a modular Layer 2 chain focused on entertainment and utilizing zkSync’s Hyperchain technology along with Celestia for data handling, also found considerable success with its node sale, launched in May 2024. They raised around $60 million by selling 121,000 nodes in less than a month.

Illustrative Examples of Node Sales
Node Sale	Launch Date	Number of Nodes Sold	Funds Raised
XAI	November 2023	34,000 nodes	$40 million (3 months)
Aethir	March 2024	73,800 nodes	$120 million (1 month)
Sophon	May 2024	121,000 nodes	$60 million (less than a month)

Why Choose Node Sales?

In addition to the significant potential for capital acquisition, node sales are beneficial for both users and projects alike. The points below highlight the advantages for users and projects participating in node sales:

For Users

• A unique chance to become a stakeholder in an emerging project with high growth potential.
• Financial rewards offered through node sales can contribute to a user’s passive income stream.
• Users may gain voting rights and influence over project decisions and governance.

For Projects

• Node sales enable projects to generate funds, distribute control of the network, and promote decentralization.
• They help ensure that control over the network is not centralized among a single entity, enhancing security and resilience.
• Node sales invite broader public participation, helping to promote the project and foster a loyal user base, which contributes to sustained success.

Therefore, all the above-mentioned benefits contribute to the rising popularity of node sales, making them appealing for new ventures within the blockchain space.

Who Can Initiate Node Sales?

Node sales can be initiated by various entities within the blockchain and cryptocurrency environment, each with distinct objectives and target demographics.

• Blockchain Projects: Startups and established networks.
• DeFi Platforms: Decentralized Finance Platforms.
• Infrastructure Providers: Staking-as-a-service companies.
• DAOs: Decentralized Autonomous Organizations.
• Consortiums and Alliances: Industry-focused groups.
• Investment Firms: Investors focused on blockchain.

Who Can Participate in a Node Sale?

Participation in node sales is accessible to everyone. Individuals with an interest in blockchain and crypto initiatives, along with businesses, are encouraged to invest in node sales.

• Individuals: Cryptocurrency enthusiasts and investors.
• Staking Service Providers: Manage nodes for their clients.
• Developers and Validators: Engage in network operations.
• Institutional Investors: Various funds and firms.
• DAOs: Decentralized Autonomous Organizations.
• Community Members: Blockchain aficionados.
• Governments: Exploring blockchain technology.
• Partnerships: Collaborative blockchain initiatives.

How Do Node Sales Operate?

Most projects conducting node sales adopt a Structured Pricing Tiers. This strategy entails offering node licenses at lower prices initially, with increments over time to instill a sense of urgency among the public, facilitating swift sellouts of nodes.

A node license grants participants the authority to operate on one or multiple nodes. Each node license includes a specified Non-Transformable Period that ranges from several months to a year, ensuring participant dedication and stability within the network.

Furthermore, various sales formats, including Public Sales and Whitelist Sales,are utilized to engage as many participants as possible. Public sales are open to all, while whitelist sales cater to a pre-approved group of participants, offering them exclusive benefits. This approach acknowledges early contributors and their support.

To set up their nodes, participants must download and install the appropriate software. Different project nodes will have specific Software Requirements tailored to their respective networks. Users uncertain about running nodes can opt for Nodes-as-a-Service (NaaS), which simplifies the process for a nominal fee.

Projects launching node sales typically adhere to a Reward Structure, allocating a certain percentage of their token supply to reward node operators. For example, Aethir reserved 15% of its token supply specifically for checker node rewards. Each node operator’s reward correlates with the number of active nodes running across the network. These rewards are distributed gradually over time to secure longer-term commitment from participants. However, if a participant chooses to withdraw their rewards prematurely, they may be subject to penalties or forfeit benefits.

Node Sales Procedure

Below are the steps involved in executing node sales:

Announcement & Registration

Initially, the project announces the specifics of the node sale, including dates, benefits, and financial and technical requirements. Interested participants must register for the sale and fulfill KYC/AML verification if necessary.

Node Acquisition & Setup

Participants obtain tokens through smart contracts or token sale platforms to secure nodes. Subsequently, they must download and set up the necessary software to operate the node.

Node Activation & Governance

Once activated, nodes permit participants to engage in network activities, contribute to decision-making, voting, and enhance the overall operations, governance, and security.

Earning & Withdrawing Rewards

Node operators earn rewards through transaction fees and block rewards distributed gradually over the vesting timeframe. Participants may withdraw their rewards early, subject to penalty fees or forfeitures of benefits.

Continued Engagement

Node operators are encouraged to maintain involvement with the project community, contributing to its development and stability while participating in governance.

Advantages of Node Sales

Node sales provide numerous advantages, which are detailed below:

Enhanced Decentralization & Security

Historically, nodes presented limited profit potential and incurred substantial infrastructure costs. However, the current landscape has turned nodes into lucrative opportunities, bolstering their appeal. Broader adoption of nodes diminishes the likelihood of centralized control, thereby mitigating risks associated with centralization. This distributed authority fosters decentralization, security, and transparency within the network.

Greater User Involvement & Engagement

Previously, token holders and node operators were distinct groups, with the latter often smaller due to technical barriers. Contemporary projects offer numerous node licenses, engaging a larger number of participants in node sales. Furthermore, allocated token rewards and voting rights foster deeper interaction among node operators.

Efficient Fundraising

Unlike other fundraising models, node sales avoid excessive token distribution to private investors, ensuring that a significant portion is retained for the community. Additionally, node sales mainly attract committed blockchain enthusiasts who invest in the project for the long haul. This makes node sales a more effective means of fundraising, benefiting both participants and projects alike.

Risks & Challenges

While node sales come with multiple advantages, they also involve certain risks and challenges that both parties should acknowledge:

• Market Volatility: Like any cryptocurrency venture, the value of tokens and rewards is subject to fluctuation and potential losses. Therefore, it is critical for investors to conduct thorough research prior to participating in a node sale event.
• Regulatory Uncertainties: Standards and regulations governing node sales are still evolving, leading to inconsistent compliance with laws and taxes, which frequently change.
• Operational Challenges: Continuous monitoring and enhancement require skilled software engineers and computational resources to ensure the effective operation of nodes.

In conclusion, node sales represent an excellent opportunity for emerging startups in the blockchain and cryptocurrency sector. Not only do they facilitate substantial funding for projects, but they also help build a loyal customer base, contributing to long-term success.

For consultations regarding launching or participating in a node sale, feel free to reach out to Blocktech Brew via email at business@blocktechbrew.com.

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