This beginners’ guide to masternode investing is taken from Issue #8 of 21 Cryptos Magazine
Written by Florian (@marsmensch)
In the past two years, a lot of people have approached me to get a feeling for the secret ingredients that make up the recipe of a great Masternode coin. The sheer number of new implementations, mostly copycats, is overwhelming and almost impossible to keep up with. That’s why I decided to save the next article from my security series, skip a night of full sleep, and write this highly anticipated newcomer’s guide to Masternode fundamentals. I try to keep the technical ingredients low, and I hope you will enjoy reading it as much as I enjoyed writing it.
What exactly are masternodes?
The most widely known and deployed Masternodes are DASH and PIVX. These two cryptocurrencies, in my humble opinion, also have the highest quality codebase. Since DASH initially introduced Masternode technology in 2014, crypto currencies utilizing them are clearly on the rise. Different implementations exist, but the majority of them are based on the DASH or PIVX codebase. PIVX, being a DASH fork itself, is one of the few coins that actually develops and improves the concept in a significant way.
Additionally, new implementations (e.g. Stratis) are currently being developed, and even established crypto projects like MUE and SYS have implemented Masternodes. Masternodes are network nodes for a cryptocurrency that require a certain collateral and have additional capabilities that “normal” nodes don’t have. They need these capabilities to provide services to their individual cryptocurrency network. One example of these capabilities is DASH’s “PrivateSend” feature, enabling fungibility not possible with e.g. Bitcoin. Another often implemented and important feature of Masternodes is a voting mechanism to reach consensus in decentralized projects.
Some features provided by Masternodes:
- Anonymization/increased privacy of transactions
- Faster/instant transactions
- Immutable proposal and voting systems
Currently, about 200 different coins (~ 1 % of the top 100 CMC) have or are planning with support for Masternodes.
Why invest in Masternodes?
The reasoning to invest into Masternode coins is based on a couple of fundamentals that differentiate a Masternode coin from other coins.
The most important arguments are:
- Locked Masternode collateral reduces overall price volatility.
- Earns interest/passive income with little effort.
- No special hardware requirements to run a Masternode. Any VPS will do.
- Investors can take part in community decisions through MN votes.
Masternodes enable a blockchain network to incentivize participation and this leads to more reliable services and a higher chance of actual adoption. That’s why I assume Masternodes and masternode-alikes (e.g. “service-nodes”) won’t go away, and we will see even more services built around them.
There is one thing I want you to be 100% aware of though: please don’t let an insanely high ROI fool you if you are looking into a Masternode! Few can actually compete against a BTC baseline over the course of multiple weeks or even months.
Challenges for Masternode investors
As with every investment, asking yourself a couple of questions about the fundamentals of a project is essential to your long-term success. Depending on your investment strategy (short vs long-term), you usually want to invest in projects that have a great chance to still exist in a couple of years and either provide or will provide useful services to the outside world in the future. Analyzing past investment performance for a Masternode coin involves tracking both the price and block rewards earned over time and make estimated guesses about the future. This is easier said than done with so many popping up.
Factors affecting the overall Masternode’s yield depend on:
- Popularity of the coin
- Payout frequency
- The number of active Masternodes
- Block rewards and interval
- The cost of running the Masternode
- The cost of required collateral
There are many more data points, and sometimes these are hard to get. All of these factors have to be considered; some even over a longer time frame. Just as with mining, running a Masternode can potentially be unprofitable at times. If you are unsure about the technical fundamentals of a Masternode coin or looking to build a long-term Masternode portfolio, I highly recommend getting in touch with the fantastic researchers at OmniAnalytics. They will generate a Masternode portfolio for a small fee that exactly matches your appetite for risk and budget.
Where to host your Masternode
Depending on your background, you might want to outsource the hosting on your Masternode. Most of them support a so called “controller-wallet mode”, where the host doing all the technical work has no way to spend your collateral for the Masternode. Make sure that your host has good customer service and supports your favorite Masternode project(s). Personally, I prefer to have full control over that part and also published an installation framework for a generalized and reliable setup for many Masternode coins. Nodemaster is 100% open source software and already supports 60+ different Masternode cryptocurrencies.
Summary and recommendations
Masternodes attract investors and developers at the same time. For mid- and long-term oriented investors, the Masternode collateral can be put to work and earn interest. Crypto project leads and independent developers, additionally, love them for their special capabilities and make them feel like an important part of the project. For that reason, crypto projects with Masternodes will attract more and more investors in the future, having a great chance to outperform currencies without Masternodes in the upcoming months/years. I hope you have found some interesting pointers in this short article to get you started with Masternode fundamentals. May you pick the right ones now and enjoy some great profits in the near future.
Important Masternode links for your research
These are the sites I am using for much of my masternode research.
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