How To Invest In Masternodes Without Getting Scammed
My interest in Web3 and crypto goes beyond profit. The idea of a decentralized world run by the people who support it has a ‘Star Trek’ utopian feel, and I want to be a part of it. Web3 isn’t free. Building Web 3 requires infrastructure and work from skilled individuals to make it a reality. While I have zero skills in programming or creating interesting projects, what I do have is a deep desire to help visionaries in the space build the future. That’s where masternodes come in.
What Is A Masternode?
A masternode is a vital part of the infrastructure of a crypto network or Web3 infrastructure. The node provides a service — privacy, computing power, storage, etc. — and earns tokens for the service provided.
There are some node projects out there that are based on one thing alone — generating a profit. If that sounds good to you, it shouldn’t. It should be a huge red flag. The masternode space has become infected by Ponzi schemes that are only focused on profit. They work…for a while. Then they collapse causing massive losses while contributing nothing to Web3. I’ll talk about how to spot these scams later. It’s shockingly easy.
But first, let’s talk about how to find masternode projects.
How To Find Masternode Projects
Twitter and YouTube can be good sources to find masternode projects, but be careful. Make sure you’re following someone with a genuine love for Web3. Too many influencers are focused on quick profits and click-baity, get-rich-quick titles. A project offering high returns without building anything has a high probability of being a scam.
If you want to hunt for undiscovered gems in the masternode space, you can use sites like masternodes.biz and masternodes.online. These sites list more masternode projects than you could possibly research. They also give you valuable information like volume traded, market cap, and return on investment (ROI). Just because a site is listed doesn’t mean it’s a blue-chip project. You still need to do your research.
Let’s go over how to do that.
How To Research Masternodes
The three main factors to consider when investing in masternodes are the project, the problem, and the profitability.
The Project
Take a look at the core team. Are they doxxed? Have they had success in the past? If you can answer ‘yes’ to those two questions, you’re almost guaranteed to have a solid project. Chances are that you won’t be so lucky. Many masternode projects are community-driven, meaning there’s no centralized team controlling them. If your project is community-driven, check out their GitHub. How many people are contributing? How many commits does the project have? When was the most recent commit?
The more active the development community, the better.
Let’s take Dash, for example:
Dash has an active community with over 19,000 commits. These metrics indicate a robust and thriving project.
Now let’s look at CryptoSaga:
CryptoSaga has 34 total commits and no commits in the last 4 years. Even though MasterNodes.online shows that a CryptoSaga node earns an impressive 203% ROI, I wouldn’t touch this one. It’s pretty safe to say that project’s dead.
The Roadmap
An active community doesn’t mean an effective community. How is the project executing on its roadmap? Is it hitting milestones on time or is the roadmap full of lofty goals and no action?
Take a look at the Sylo Roadmap, for example. It shows a history of achieving goals. Their Discord also shows they’re on the cusp of launching incentivized nodes (using Seeker NFTs) and migrating the network. In short, they’re executing their vision.
Roadmaps that haven’t been updated in a long time and contain lofty goals can be a red flag. The project may not be serious about executing its vision. Of course, a project could also post a roadmap that only shows achievements and ignores any challenges. That could be a red flag as well. Be careful when evaluating roadmap progress.
The Problem: What Problem Does The Project Solve?
Does your masternode project solve a real problem? Is there a reason for the node to exist at all? Let’s look at Kyanite Coin, for example.
Masternodes.online shows the project with a reasonable $1,500 investment and 77% ROI, but what problem does it solve? The Kyanite coin site says that it’s a cryptocurrency used exclusively for erotic services and gambling — the ‘adult’ coin. Why is that needed? If you’re using a legal service, any payment should be fine. If you want privacy, why not use Monero or Dash? Those coins can be used for anything. Why do we need a coin that’s exclusively for gambling and adult services? I’d argue that Kyanite coin isn’t solving a problem and would exclude it from my list.
Who Are The Competitors?
Maybe Kyanite Coin would be a viable solution if it was the only privacy coin out there (I’m assuming it’s a privacy coin. I wasn’t interested enough in the project to verify it). But Kyanite isn’t the only privacy game in town. I already mentioned Monero and Dash. Both of those projects have a more robust following and are more widely accepted by vendors. Kyanite can’t touch those projects. At least, not for the foreseeable future.
Profitability: What Does It Take To Run A Node?
I’m going to cut Kyanite some slack here. Dash is indeed a quantifiably better project in the masternode space, but you need around $115,000 in Dash to stake a node. That’s cost-prohibitive for the vast majority of us. The ROI for Dash is also around 6%. That’s a far cry from the 77% offered by Kyanite. Kyanite could be a better project choice for someone solely looking for yield.
When investing in masternodes, you need to have a set plan. Are you a believer in the project who wants to help build something or are you looking for a quick buck? If it’s the latter, you better have a solid exit plan.
The cost of running a masternode isn’t just the stake. You need to consider what resources it takes to run your node and how much those resources cost. Some nodes like Presearch can be run for as little as $25 a year on a virtual private server. A Flux node will cost you that much to run every month. Read the project’s whitepaper and join their Discord to get a good idea of how much it’ll cost you to run a node and how easy it is to set up.
Run the numbers for yourself and decide if your potential profit is worth the cost of running your node of choice.
How To Avoid Scams
It’s sad that we have to talk about scams every time we talk about crypto, but that’s the price of being early. I’ve lost thousands to scams. Fortunately, they’re easy to spot in the masternode space. Many whitepapers will outline a classic Ponzi scheme model for payments. You just need to look for it.
What’s a Ponzi Scheme?
A Ponzi Scheme uses new investments to pay off previous investors. For example, I could promise a 25% return on your investment in my ScamFund. Ten people invest $1000 each and I take $250 from five of them to pay the other five. Now five people have $1250 and think I’m a god.
Of course, I don’t tell the five people I took $250 from that I did that. I just wait for more people to bring funds in and pay them their money plus the $250 they’re expecting. Now they think I’m a god too. The goal is always to bring in more investors and more money. See the problem?
Eventually, you run out of people willing to invest. Then the money’s gone. Everyone who didn’t cash out loses. This is exactly what some ‘nodes’ are doing.
How To Spot A Ponzi Scheme
The first red flag is that the project wants you to buy a node rather than stake. Legitimate masternodes want you to have skin in the game and will require you to stake a certain number of coins to run the node. Those coins are still yours and you can unstake and liquidate them whenever you want. A scam node will require you ‘buy’ the node. Your coins are gone. Where do those coins go? Let’s take a look at this infographic from Thor.financial.
It shows 49% of the purchase price of Thor nodes going to the reward pool in V1 and 65% going to the reward pool in V2.
The second red flag is that your node payment is used to pay out rewards for previous node holders. In the case of a Thor node, you’re paying out current Thor node holders and future investors will be paying you. It’s unsustainable. Yes, some people will make money, but the ecosystem is doomed to collapse in its current state. This payout model is disturbingly common.
The third red flag is that the project doesn’t offer anything of value. Here’s a quote from the Thor website that shows what I’m talking about:
“Our objective is to help as many to generate passive income continuously with minimal effort. This is the reward people truly deserve and we are bringing this to you.”
The only reason for Thor to exist is to make its holders money. It doesn’t build anything. Their site goes on to say that they invest in Defi protocols, NFTs, staking pools, and ‘other projects.’ It’s basically all of the buzzwords to get you to invest. Maybe they really do invest, but that means Thor Financial likely passes the Howey Test and could be targeted by the US Securities and Exchange Commission (SEC).
In addition, Thor isn’t even a node. The project is using the term incorrectly. Remember that a node provides some kind of work that adds value to the project. There’s no work involved in a Thor ‘node’. It’s just an investment pool.
Conclusion
Masternodes are a great way to get involved in Web3. You can earn crypto for being a part of a growing ecosystem. That crypto can then be leveraged into more nodes or other investments as you see fit.
Research is critical in this space. Leverage Twitter, YouTube, and masternode aggregator sites like Masternodes.online to find potential projects, then dive deep into their project, problem, and profitability before you invest. Finally, make sure you understand the risks of the project you’re supporting and never risk more than you’re comfortable with losing.
If you want to continue the conversation, you can connect with me @CryptoDegenFML on Twitter or CryptoDegenFML here on Medium. If you liked this article, please clap for it (up to 50x) to let me know you enjoyed it. It’ll mean a lot to me. Thank you, fellow degens!
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