In my continuing attempts to look at the cryptocurrency space with the eye of an investor, I'm searching out ways of generating income.
No, this isn't going to be some spammy attempt to get you to use an affiliate link to any dodgy mining outfit that will rip you off. Instead, this series of articles is my look around the markets to find out if there are ways of generating a passive income with cryptocurrencies. The series will be in 3 parts:
- Masternodes
- Staking
- Lending crytopcurrency to speculators
1). Running a Masternode. Becoming part of the 'infrastructure' of a particular coin. You help secure the network & in return you get some coins...lovely.
Advantages:
- Nice & passive. Leave your computer running and accumulate $$$
- Predictable. Often you're able to work out exactly how much income you will generate each month, though obviously the coin will vary in value compared to fiat currencies
- You own an asset that can appreciate in value. If the price of the underlying currency goes up, your node becomes more valuable. People saw this with DASH & now with PIVX (dammit I didn't jump on that train fast enough). This can be very profitable: You are holding an asset (the currency), which is rising in value. You are receiving a monthly income in a currency that's appreciating in value. And finally you own an asset (the masternode) which is increasing in value.
A made-up scenario
Person A likes a new alt-coin: beer-token. He buys 10,000 at $0.10 each for total investment of $1000.
Person B likes beer-token too. He buys 10,000 and uses them to run a masternode. Total investment $1000.
After a year the coin has doubled in price, brilliant. What are the results?
Person A has an asset now worth $2000, a 100% return
Person B however has done MUCH better. He still owns his coins ($2000), but he's also received a 30% return on his initial investment & earned 3,000 coins over the year ($600), AND his node is now worth twice what it was before. (This is where I get a bit confused, will there be a secondary market for masternodes set up? Because the coin won't need more & more of the things. Will the node be worth more than the price of 10,000 coins? Answers on a postcard please).
Of course if beer-coin started terminally dropping in value, it's likely Person A would be more likely to cut their losses.
After a year, beer-token has just dropped & dropped. It's now worth $0.001. No-one is trading it, or using the network very much.
Person A get's out after the currency drops 30%, he retains $700.
Person B just hold's on... he can't give up his node or monthly earnings (which are worthless at the end of the year). Total wipeout, he's lost his $1000.
Disadvantages:
- This can be expensive, especially as more people are becoming aware of the potential. For example, running a DASH node requires 1000 DASH (at current price of $75.76 per DASH, that's $76,000!)
- Risk that the coin you back is a shit-coin & it dies. Worst case: You invest a few $K & lose the lot. You can't lose more than you put in, but there is what investors call the 'opportunity cost'. For example: You choose to invest your $5,000 in a masternode in a network that dies, that means you couldn't invest that $5,000 anywhere else (like the default of simply buying bitcoins)
Currencies currently paying you to run a Masternode:
DASH https://www.dash.org/
Current cost: $75,000 +
Current Monthly Returns of: $518 (just over 8% annual return)
https://dash-news.de/dashtv/ (this shows you your monthly DASH earnings)
PIVX https://pivx.org/
Current Cost: $17,500
Current Monthly Returns: $185 (just over 12% annual return)
http://pivxtv.azurewebsites.net/ (this shows monthly PIVX earnings)
ION https://ionomy.com/
Current Cost: $10,200
Current Monthly Returns: $648 (just over 76% annual return!)
https://masternodes.ionomy.com/
If there more to add to this list, please let me know!
Will Masternodes become an increasingly common way of generating a bit of passive income for the chosen few actually aware of this stuff? There's something very appealing of a laptop sitting quietly in the corner bringing in $500-a-month.
Solutions if you can't afford (or don't want to risk) investing in a full node:
- gather like-minded friends together to get one together (risks of someone running off with the money I guess)
- Use a hosted master node service.
Disclaimer: I don't currently own any Masternodes. This article was partly to make me research the field more fully before jumping in.