Part 1 - A new way to generate passive income
Part 2 - What is a Masternode?
Part 3 - Are you an ideal Masternode operator?
Part 4 - Finding the Perfect Masternode Coin
Part 5 - How to Buy Masternode Coins
Part 6 - Masternode Setup 101
As I mentioned in previous sections - I never give investment advice on specific coins. Many coins in the ecosystem have great potential to become useful viable assets and even more are complete scams and have no viable economic value. The latter doesn’t stop their valuation going to the moon in the short term. Therefore we start with a practical example of what RISK tolerance should mean to you if you want to own a Masternode.
A practical example of RISK tolerance
This scenario actually happened with one of my masternodes, but I’m not going to list the real coin name. Rather, we’ll call it CRYPTO Coin to protect the innocent.
On March 19, I purchased 5000 CRYPTOs (1 Masternode) at a rate of $2.12 each for a total investment of $10,600. At the time, I was receiving about 150 CRYPTOs per day from the masternode, so about $318 / day. Not too shabby. This went on for about 1 week before the price of CRYPTO Coin got pummeled down to $1.50, then $1, then all the way to $0.50. By April 11, my initial $10K investment was now only worth $2500.
A hard pill to swallow for sure, but I decided no one ever made money panic selling and nothing about the project had changed. The same great developers kept working on the coin’s vision so there was no reason that something worth $2 less than a month ago should be worth $.50 today. Therefore, I put my big boy pants on and bought another 5000 CRYPTOs for a second masternode. Sure enough, by May 9, the price of CRYPTO Coin bounced back to $1.90 and I now have 2 Masternodes that are worth almost $20K, having paid only $13K. Plus the pair are earning about $300 / day in new CRYPTO Coin. You might think they would be earning $600 / day, now that I have two, but I wasn’t the only one with the flash of genius to buy up more masternodes at $0.50, so the number of masternodes shot up and each node produces less as a result.
Warning: This is the exit ramp. If you can’t stomach this kind of swing, don’t bother investing. You will lose your money. Don’t pass go, don’t collect $200… go straight to your nearest Stock brokerage and buy some S&P 500 Index funds.
If you are still reading, I’m done with talking about RISK. You get it, now let's figure out how to pick you first Masternode. I’ll start with spotting clear scams or coins with no future. The difference is, some coin developers are clearly trying to pull something malicious (exit scams, stealing funds, etc) others are too ignorant to know that their ideas are no good and/or they can’t deliver. Both present themselves similarly.
DO NOT BUY Signs
Little to no development activity. It's easy to clone another existing coin and just change its name to claim it is “NEW”. What’s harder to fake is real github activity and public development communication on Discord, Slack, and/or Telegram. Therefore always join the communities of your perspective investments to look under the hood.
Too much marketing of the Masternode feature. Many new coins will market themselves exclusively as a way to make a quick profit with masternodes. There are little to no OTHER benefits to the token or platform. Pyramid scheme comes to mind here. Holders of the coin are relying on there always being someone willing to pay more for the coin than they did.
Overly generous reward structure. If a masternode is worth $1000, and it generates $500 / day in rewards, the money supply will be very inflationary and your $1000 masternode will be worth $100 in the near future. Obviously, new coins will suffer from this issue more than established coins, so it's not a complete deal breaker, but if you have a coin that’s more than 3 months old and it promises greater than 500% ANNUAL Return - be afraid.
Low volume on exchanges. It will be difficult to buy the collateral for the masternode if there isn’t enough coin for sale. You’ll move the price up to buy enough coins, just to see it drop back down minutes later.
Tiered masternode structure. I’m still undecided if offering different masternode collateral amounts (and reward payments) is necessarily a bad thing. On the face of it, it will save an operator from paying several VPS instances if running several nodes of the same coin. Unfortunately, to-date most of the coins that do this, also suffer from the other red flags mentioned above.
The recipe for success
Here is the unicorn that I look for. I’ll start with the financials and move to less tangibles.
Age - You want a coin that has passed its initial launch. During launch time, there is a flurry of activity and lots of manic price action. Not to mention there aren’t a lot of masternodes yet, so the rewards look huge. But as the excitement wears away and the early masternode adopters need to sell their coins, you can pick up good deals and the rewards will be more predictable.
ROI - On most Masternode listing sites, ROI is the % you will earn on your investment expressed ANNUALLY. Think APR. I look for coins that are ranging 300-800% ROI, currently. Keep in mind that there is a general trend DOWN on APR as time goes on as more masternodes are being deployed everyday. Anything more than 800% ROI on a coin that is >3 months old, and the reward equation is too generous. Anything less than 300%, and the RISK isn’t worth it for me.
Daily Trading Volume - The key here is to find a coin that has at least 10x in daily trading volume compared to the amount of coins you want to buy. Otherwise, you will spike the price when buying the collateral for the nodes. Keep in mind that coins are listed on different exchanges, so make sure you buy from the one with the most liquidity.
Once you narrowed down to a handful of coins that work on paper, now the real detective work begins. You need to go out and do research the community of developers, managers, users, and investors that are supporting the coins. Join all their social media platforms.
Research the Developers - You need to be looking for developers that, well… develop. Ideally, they are not anonymous (or at least not all of them). Look at their previous work. Were they part of the Bitcoin core group in 2012, or did they just learn how to code in C++. It matters. Ironically enough most cryptocurrencies are still developed in C++ (a 35 year old programming language) for its memory optimization and OS level security.
Managers and Users - There should be some. If the coin isn’t big enough to need community managers and active users contributing on platforms like Discord or Reddit, it's not a good sign.
Investors - This is often overlooked and hard to gauge, but quite important. What you are really looking for is hardcore believers. Are there consistent posters that stay invested during huge price fluctuations, or is the conversation dominated by “I can’t take this anymore, I’ve sold all my coin” types. In the crypto world, the latter are called weak hands and cause price pump and dumps.
Where to look
Much of the financials can be found on listing sites like Masternodes.online, Masternodes.pro, etc. All the data that you need to comb through can be easily sorted on the main page to help you narrow down the coins you should be looking at.
Once you are down to your top 5 candidates. Start exploring their websites, Bitcointalk Announcement threads, Github pages, and community hangouts (Discord, Slack, Telegram, etc). Look for all the items mentioned above, especially any red flags.
Once you have your coin(s) selected, go buy them! Here's how its done.
