Masternode is simply a cryptocurrency full node or computer wallet that keeps the full copy of the blockchain in real-time, just like you have Bitcoin full nodes and is always up & running. But masternodes are considerably different in their functionality than normal nodes. They are different because they perform several other functions apart from just keeping the full blockchain and relaying blocks/transactions as a full node does in Bitcoin/Litecoin. A Masternode later gets a reward per block every 180 seconds for the task performed on the network. These rewards are immediately paid to the GOLDY Coin wallet address that is linked to this Masternode.
Using Masternodes further guarantees the stability and protection of the whole network. Furthermore, these nodes perform another important role within the network to mix numerous transaction amounts to increase fungibility and anonymity of transactions. Masternodes are in fact the computors and servers that are connected to the blockchain at all time. This can be your own computer or a VPS (Virtual Private Server) at a provider's data center. All masternodes operate together to keep the blockchain running, to process its data and to keep it safe. For participating in the performance of these tasks, your masternode receives its rewards from the blockchain, being a predetermined amount of GOLDY Coins. Since the blockchain has to be updated and verified continuously, this requires very frequent blocks of data, that must be approved by all masternodes.
These frequent blocks (which frequency is also predetermined by the system itself) and the associated rewards create a guaranteed constant flow of coins to your wallet. This is what generates your passive income.