How To Leverage Masternode Compound Interest to Pack Your Bags:
The Power of Compounding Your Passive Income
Part 1 — Background
In April 2018, I read a retweet by a well-known crypto-miner @notsofast (from 2 years prior) calming that [paraphrasing] owning a Masternode of Dash (1,000 Dash Coins) would one day be like owning an apartment building in Manhattan.
Owning rental real-estate pays you passive income, owning a building full of rental real-estate in Manhattan pays you lots of passive income…. Continue please.
At the time of his original tweet, a Masternode of Dash was worth approximately $2,500. At its height in December 2017, a Masternode of Dash was worth approximately $1,500,000 (although closer to $315,000 at the time of writing). The roughly 59,000% jump in value is unreal in its own right, but we have seen this with other coins. What really intrigued me from the start was that in addition to the coins growth in price, because of its Masternode rewards, you are getting paid significant passive returns, potentially increasing your ROI exponentially.
Before we move on, it is important to at least conceptually understand Masternodes and Compound Interest.
In basic form, a Masternode (according to @darbyOgill_) is a “full node or a cryptocurrency wallet that is fully synced on the blockchain of whatever coin you choose with Masternode function availability and is always running 24/7.” To phrase this in another way, a Masternode is a set amount of coins of a currency (that has Masternode capabilities) that are placed in a secure wallet and made available to the community at all times. The benefit of this is that a Masternode can perform multiple generic and unique functions for the cryptocurrency, at much higher rates of speed that individual segments of the blockchain.
Hosting a Masternode is ultimately a service to the cryptocurrency itself, and in return, rewards (in the form of the Masternodes coin) are paid back to the person hosting the Masternode.
There are two can’t-miss articles that you should read if you are truly interested in getting involved in Staking and Masternoding. The first of which is a great article by CoinSutra, detailing what Masternodes are and how they work. The second is a Medium Article by @DarbyOgill_ called Masternodes for Beginners. The second article goes into really nice depth on how to select a Masternodes, and how to get one up and running.
Compound interest is a pretty simple concept, but often people fail to fully grasp its power. Compound interest is just the concept of taking your interest earnings and adding to to your principal so the next interest earning is based on a higher principal amount. Pretty straight forward right? Most people are pretty familiar with compounding interest in the realm of traditional investments and portfolios, but this powerhouse takes on a whole new meaning when it comes to Crypto investments and Masternodes specifically.
The critical thing to keep in mind when it comes to compound interest is not the percentage of or principal you receive or even the principal amount, it is the rate in which your interest compounds. The faster you compound interest, the faster you build the principal that you can keep compounding.
There are multiple compound interest calculators online you can play to get a feel for how it works, but here is a simple example of the importance of the rate at which you compound. Consider the following scenarios of fixed principal and interest, at varying compounding rates:
· A Principal of $1,000 Compounded Annually for one year at 1% = $1,010.00
· A Principal of $1,000 Compounded Quarterly for one year at 1% = $1,040.60
· A Principal of $1,000 Compounded Weekly for one year at 1% = $1,126.84
· A Principal of $1,000 Compounded Daily for one year at 1% = $37,783.54
Part 2 — In Depth
Ok so at this point you should have at least a basic understanding of Masternodes and compound interest. So you just pick a Masternode coin, set up your Masternode, reap the rewards right? Well kind of, but like most things in life, it is critically important to optimize your process.
On a very basic level, when you are running a Masternode, you will receive your rewards (at the reward interval for the coin) to a wallet you establish separate from the Masternode. You can let this wallet accumulate indefinitely if you like, but you will always only be generating the compound interest from your running Masternode. Think if it this way. If your Masternode requires 5,000 coins, and you have 6500 coins, you still are only earning rewards on the 5000 coins in the Masternode. You cannot run a partial Masternode, and as such, you won’t be able to re-invest your earnings until you have enough coins to buy another full Masternode. If you recall above, the faster we can compound those earnings the better, so how do we make it happen?
Enter the concept of Masternode Sharing. I originally stumbled across Masternode sharing services because the cost of the Masternodes I wanted to participate in was way out of my budget. In addition I did not have the Linux background to feel comfortable setting up a Masternode, and I live in an area where internet costs are unspeakably high, so keeping a node and rig online at all times was likely a losing-sum game. What started as the “easy” way, ended up becoming the “light bulb” moment for me when I realized that sharing services also allow me to leverage my earnings in a more efficient manner.
A Masternode sharing service is essentially a company/person that offers the purchase of Masternode slots (percentages of Masternodes) to its users. By doing this you are able to purchase a much smaller amount of a Masternode, and receive a reciprocal percentage of that Masternodes reward. The Masternode sharing service collects a fee for their service (which I have found to be nominal), and does all of the coordination and hosting for you. I personally use Simple POS Pool, but I am aware that there are others out there with varying coin offerings. I have written a review of Simple POS Pool HERE that I think is important to read prior to signing up.
Back to the lightbulb moment…. I quickly noticed that because I was able to buy slots (small percentages) of a Masternode, my rewards quickly accumulated to an amount to where I could purchase another slot. Adding that additional slot entry, meant I was able to build up to another slot entry even quicker. Every time I bought a Masternode slot, I was on the road to generating enough coins to buy another even faster. This all got me wondering, how much different is my rate of return than if I owned my own Masternodes, or if I didn’t own any at all. Buckle up.
Part 3 — Use Case
You should be assuming at this point that holding a Masternode of a coin is more profitable than holding the same quantity of said coin, what you may not have assumed is that holding Masternode slots of Masternodes of said coin is more profitable than holding an entire Masternode of that coin. Lets look at actual numbers from actual coins and see what it really looks like.
For this purpose of this analysis I have selected two coins (DEV and PURE) to evaluate over a one month period from 5/5/18 to 6/5/18. I purposely selected a coin that over that period showed a slight increase in price (DEV) and a coin that showed a massive decline in price (PURE). As you probably know by now, some coins do well, and most coins do horribly. If you catch a rocket… all of this is pointless, you are loaded. If you have a good coin that shows stable growth, it’s important to know what will happen, and when you have an absolute train wreck (and you will), it is also important to know what will happen.
I used historical price data for each coin from Coinmarketcap.com, and the average Masternode rewards per day from masternodes.online. Also for convenience, both of these coins require 5,000 coins to create a full Masternode.
I used the following three methods of comparing performance for illustrative purposes:
1. Fixed Portfolio: In this scenario I simulated purchasing the quantity required to purchase a full Masternode, but did not purchase a Masternode. Portfolio value fluctuates with price but the coin quantity is fixed (5,000)
2. MN Portfolio: In this scenario I purchased the 5,000 coins to create a full Masternode and then created the Masternode. Portfolio value is fluctuates with price and is positively impacted by rewarded coins.
3. POS Pool Portfolio: In this scenario I purchased the 5,000 coins to create a full Masternode and then created the Masternode. Additionally every time I generated 50 coins I purchased an additional Masternode Slot (1%). Portfolio value is fluctuates with price and is positively impacted by rewarded coins.
First Let’s look at the portfolio balance (amount of coins):
In the case of DEV, the fixed portfolio started with 5,000 coins, and ended with 5,000 coins (shocker). The MN Portfolio started with 5,000 coins and ended with 9,130 (earning 4,130 Coins). The POS Pool Portfolio started with 5,000 coins and ended with 11,271 coins (earning 6,271 coins).
In the case of PURE, the fixed portfolio started with 5,000 coins, and ended with 5,000 coins. The MN Portfolio started with 5000 coins and ended with 7,404 (earning 2,404 Coins). The POS Pool Portfolio started with 5000 coins and ended with 8,049 coins (earning 4,049 coins).
Now let’s look at portfolio value (note that this is impacted by both coin price and balance):
In the case of DEV, the fixed portfolio started with an entry value of $19,150, and ended a value of $20,550 (earning $1,400) The MN Portfolio started with entry value of $19,150, and ended a value of $37,527 (earning $18,877). The POS Pool Portfolio started with entry value of $19,150 and ended a value of $46,325 (earning $27,175).
In the case of PURE, the fixed portfolio started with an entry value of $8,950, and ended a value of $1,430 (loosing $1,400) The MN Portfolio started with entry value of $8,950, and ended a value of $2,117 (loosing $6,832). The POS Pool Portfolio started with entry value of $8,950, and ended a value of $2,302 (loosing $6,647).
Part 4 — Conclusion
A few things should immediately jump pout at you from the data above:
1. No matter what Masternode you choose, you are impacted by price. Having 12,000% ROI for a week (or month) is irrelevant if the coin price collapses. You are left with a ridiculous amount of a coin that you may not be able to liquidate and has no value. This makes your coin selection criteria that much more critical.
2. As coin prices rise, your account balance will rise at a faster rate if you have more coins to multiply the coin through. Adding significant pump to your profits.
3. As coin prices drop, your account balance will fall at a slower rate if you have more coins to multiply through. Adding some price protection and cushion to your investment.
4. The faster you can make your rewarded coins start generating more rewards the better. Purchasing slots so you can scale into Masternode positions as soon as possible is incredibly beneficial to your overall account value.
5. Even though Masternode Sharing Services are often looked at as the “easy” or “cheap” way to invest in Masternodes. If done correctly, they are arguably a much better investment than actually owning the Masternode itself. One serious caveat to this is coin security. I speak to this in more detail in my Simple POS Review HERE but it should be understood and considered prior to investing.
In terms of selecting a Masternode coin to invest in, will offer the following… I have personally picked amazing Masternodes and unbelievable garbage, and as such I do not have any sort of a coin selection track record that qualifies me to advise you on an individual coin. You MUST do your own research. You should evaluate the coin from a fundamental (Team, Whitepaper, Road Map, Community, etc.) and technical (Price, Volume, Market Cap, ROI, etc.) standpoint before investing. Do not only look at a coins ROI, as it is often very misleading and not indicative of coin strength. There is a wealth of information out there to use on coin evaluation, please use it.
Referral: I put this information together in the hopes that it helps someone like me who is looking for more information on Masternodes and investment strategies. It is of course free to use and I truly hope you can leverage this concept to maximize your portfolio and positions. If you are interested in trying out Simple POS Pool as a Masternoding Sharing Service, I kindly ask that you use my Referral Link. It is much appreciated, and would help me out tremendously.
A Final Word of Caution! The above information references my opinion, and is for information purposes only. It is in no-way intended to be investment advice. Seek a duly licensed professional for investment advice. As with anything in the Crypto world, Please be safe with your account information and your funds. Never invest more than you are comfortable loosing.