Masternode Projects: A Primer

· Please note that all assertions and conclusions that I present here are based on my own research and opinion and are not intended to be construed as investment advice.

· This is the first of what I hope to be a continuing and expansive series on various cryptocurrency related projects.

I. Masternodes

Masternode based coins appeal to me for a variety of reasons. First, they provide a passive stream of income that requires at least some level of commitment from the masternode owner. Second, depending on how the infrastructure is designed, masternode coins can provide additional functionality that is simply not available in other types of cryptocurrency. Finally, running a masternode adds another layer to the decentralization of the digital currency, a layer that provides decentralization that is somewhere in between an individual miner and a more centralized system. When looking at these elements, masternode coins jump out at me as being a type of blockchain product that has a decent chance of being able to survive, and thrive, for the long term.

a. Masternode Basics

Before continuing, it is important to understand the basics of how a masternode works. Please note that this is not meant to be an exhaustive examination, but rather a very basic and simplified overview to provide context. Generally, a masternode is a standalone server that provides specified services for a coin. In Dash and Pivx for instance, masternodes are used to provide anonymization services as well as a validation service for the blockchain. To run a masternode, a minimum number of coins are required (collateral), along with a dedicated server to host the blockchain and run the node. Specifically the server must have the resources and be powerful enough to provide the services that the system requires its masternodes to perform (these can vary significantly between different projects). The service offered by masternodes range from anonymization to message sending and verification, with additional functionality currently being proposed and developed by different projects. As a reward for operating such a server, masternode owners receive a portion of the block reward, though other mechanisms also exist. By providing this reward, masternode projects ensure that there is sufficient incentive for coin holders to create a masternode.

II. What I Look For

I want to preface what I am about to write by acknowledging the extreme irrationality in the market currently. At present, some of the largest exchanges have suspended new registrations due to an overwhelming demand to enter the market, and to note that even some dubious projects have increased dramatically in recent weeks and months. With that said, there are a number of masternode projects that I think have the potential to be successful in the long term. Generally, when I look at a project, there are several key features I look to in determining whether the project is worth my time and money.

First, I look to whether there is an active development team and how much information there is about them. While I prefer the transparency of teams that provide actual biographies with LinkedIn or other social media profiles, if a developer has been in the space for years (verifiably), that can be acceptable as well. (If it is an Initial Coin Offering (“ICO”) or the team is asking for funds directly, that is a different story and I expect more). Second, I look at the strength of the community: are there 5 subscribers in the telegram/slack/discord or 5000? Does the community hit social media about the project or are they more subdued? What kinds of negative information is being discussed by the community and is there any merit to the concerns? By looking at that information objectively, I can get a picture of the relative health of the coin. Third, I look to innovation: Does this project provide any benefit over projects already available, or is it simply a clone? I find that this factor is not always easy to determine since most begin their lives as clones to some extent. Because of that, I generally look at the roadmap and any unique ideas presented in a whitepaper (if present). If there is some feature, value added service, or technological innovation not found elsewhere that a coin intends to provide but that may simply be non-functional yet, then those projects have the best long term appeal. As noted above, a whitepaper is also a factor. Although many projects do not start with one, a professional whitepaper is a great indicator of a dedicated team and coherent vision. Finally, and as basic and pedantic as it may seem, misspellings, grammatical errors, and unprofessional web pages are a massive red flag to me. If a developer does not have the pride, or attention to detail required to fix those types of errors, then I see a huge red flag, or at the very least a lack of professionalism on the part of the development team.

There are of course other factors that have to be examined to determine whether a particular masternode coin is suitable. These include, but are not necessarily limited to: (1) cost per node (fiat or BTC); (2) Return on Investment (“ROI”) (be wary of coins with a massive ROI); (3) volume and liquidity (this is important; if you can’t sell or buy the coin, it is not very useful); (4) wallet functionality and syncing (many wallets have bugs and difficulty in syncing the blockchain making it problematic to utilize effectively); and (5) server or VPN costs. While this is not an exhaustive list, the above are important aspects to consider depending on individual circumstances. For instance, I am not going to leverage my house to purchase a $50,000 masternode (or any cryptocurrency for that matter).

III. Promising and Innovative Projects

For the reasons outlined below I am bullish on: ZenCash, Crown, Phore, SmartCash, and Pirl with honorable mentions for ColossusXT, Renos, and Phils.

a. ZenCash

ZenCash is probably the coin I am most bullish about longer-term. I believe it is heavily undervalued at the current market cap because it is technologically superior to both ZCoin and ZCash (though that could be debated), providing shielded transactions through secure nodes, and the development team seems to have a better long term vision than its competitors in that space. In addition, the developers are planning on incorporating additional governance mechanisms that will allow holders to vote on projects and the direction of the project. While currently the secure node set-up is anything but user friendly, I believe ZenCash could, and should, rival ZCash’s market cap. The development team is transparent, and they provide identities and biographies of most team members and there is a professional and solid whitepaper. I think 2018 could be a massive year for ZenCash.

My personal prediction for a high in 2018 is $~800, with a stable price of ~$600.

b. Phore

Phore is interesting because although it started out as another clone of Pivx, they are trying to add additional functionality by including an online, trustless marketplace. The roadmap also proposes additional features such as smart contracts, atomic swaps and crowdfunding as well as a governance mechanism. The team is respected in the space, but they are not transparent in their identities. There is a white paper, though it is a fairly simple document, more about outlining vision than technical details.

My personal prediction for a high in 2018 is ~$40 with a stable price closer to ~$30.

c. Crown

Crown is probably the most stable of the coins included in this list. They have a solid development team with decent transparency, a professional roadmap and whitepaper, and a great set of features included governance (amazing), merge mining with bitcoin, and Crown Atomic, which provides the software framework to enable the creation of applications. The general direction of the company is towards mass adoption and appeal, and I think they could be very successful.

My personal prediction is for a high in 2018 of $~18, with a stable price around ~$15.

d. SmartCash

SmartCash is in the process of implementing masternodes, and they should be live this week. SmartCash provides a privacy centric coin with some unique features such as a reward mechanism for community development, and a smart rewards system for staking SmartCash for extended periods of time (~30 days and longer). The development team is moderately transparent, and there is a decent roadmap. There is no whitepaper.

My personal prediction for this is a high in 2018 of ~$2.50 with a more stable price of ~$1.50.

e. Pirl

Pirl is likely what I would consider the riskiest of the projects that I am very bullish on. Essentially, Pirl appears to be attempting to create a blockchain that competes with Ethereum as a smart contract platform, while also utilizing the added features and benefits of a masternode system. The development team is partially transparent, giving names and handles, but no actual biographical information or social media profiles. There is no whitepaper, and the roadmap, while informative for a general overview, does not actually give any time frames. I also note that a masternode is expensive, being ~$40,000 at the time of writing. Overall, this could be a high risk/high reward option, but one that could turn out to be quite lucrative.

My personal prediction for this is ~$30, with a potential swing of between $~4 and ~$50 depending on implementation.

IV. Honorable Mentions

f. ColossusXT

COLX is a Pivx clone with a solid community around it that incorporates a Proof of Stake 3.0 mechanism. It has been on a tear recently, and I believe it could provide returns akin to what Pivx originally provided. However, I note that the development team is opaque, the roadmap is simple and not especially informative, and no whitepaper has been released yet (though this is supposedly coming). In the interest of full disclosure, I hold a significant amount of COLX.

g. Renos

Smaller market cap masternode coin with governance features. Good potential.

h. Phils

A brand new coin with crazy ROI, but with planned governance features. This seems to me to be highly speculative, but fair potential.

Ownership disclosure

I currently hold ZenCash, Phore, Crown, and ColossusXT. I plan to open positions in all of the projects mentioned above in the near future.

About Me

I am an attorney that works in corporate law. I started with cryptocurrency mining on my Radeon 7970 in late 2013 and early 2014 during the first Bitcoin and Litecoin. Sadly, I sold those during a moment of weakness and financial difficulty in late 2014 (I still fantasize about finding old wallet.dat with thousands of litecoin on one of my old hard drives). I recently got back into it in early 2016 and the current rate of technological innovation fascinates me, and hopefully makes me a wealthy man.

If you are so inclined, feel free to donate some Ethereum!

Ethereum: 0x7D7974eEbbC3932543ff33a54c1CF4e67AF78F7B