My Masternode fundamentals primer
aka some pointers to get you started with Masternode fundamentals and how to pick the right ones in no time. Enjoy! ;-)
Since DASH initially introduced the Masternode technology, crypto currencies utilising them are clearly on the rise. Different implementations exist, but most are still based on the DASH code. New implementations (e.g. “Stratis”) are currently being developed and even older crypto (like MUE) projects switch to Masternodes.
This article is more about fundamentals than the technical background i usually talk about. If you are looking for an easy way to install a masternode, look at my nodemaster script.
This will work even with only limited Linux know-how and you will be able to to manage, setup and update Masternode instances in no time. If you didn’t try it already, check out the documentation or my recent article where i describe a #Znode installation.
This article is just a simple demonstration how to use my nodemaster script to setup a $XZC / Zcoin Znode in no time.medium.com
Masternode technical capabilities
Masternodes are network nodes for a cryptocurrency that require a certain collateral and have additional capabilities that “normal” nodes don’t have. One example of these capabilities is DASH’s “PrivateSend”, enabling e.g. fungibility not possible with e.g. Bitcoin. Another often implemented and important feature of Masternodes is a voting mechanism to reach consensus in decentralised projects.
The (incomplete) list of features provided by Masternodes include:
- Anonymization / increased privacy of transactions
- Instant transactions
- A decentralised governance
- A decentralised budgeting system
- Immutable proposal and voting systems.
Masternode collateral reduces price volatility
The Masternode collateral reduces volatility, since the the funds are not available for trading. This drives demand higher as the supply comes off the market. On the other side, running a Masternode usually provides core functions to the network so they earn a certain amount of interest, depending on different factors.
For providing their services, Masternodes are usually paid (eg via a certain portion of the reward for each new block).
The overall Masternodes yield depends on:
- The value of the coin at the time exchanged
- Frequency of payouts
- The cost of hosting / maintenance
- The cost of the coins
- The block rewards of the coins
- The amount of active Masternodes
All these factors have to be considered, some even over a longer time frame. Just as with mining, running a Masternode can potentially be unprofitable at times.
A couple of thoughts about Masternode ROI calculations
Most online pages (eg. masternodes.pro, masternodes.online) that are displaying a Masternode ROI ratio are not very accurate. The reward changes all the time and any websites that report daily / monthly / yearly ROI earnings are making an estimate based on the current moment in time, which is only accurate if the current conditions do not change.
This is the case because every fork does spread the rewards differently and these “tracker sites” can’t install any Masternode to calculate the ROI from actual rewards.
For example, $DASH pays it’s Masternodes based on a deterministic schedule so that each node is paid in a round-robin fashion until all nodes have been paid. However, Dash does add a small bit of variance so the system cannot be gamed. There is a very small chance that a Masternodes can be skipped or double paid in a cycle.
Other currencies like $PIVX handle Masternodes selection and payment differently. This is why you take these calculations at least with a grain of salt.
In most cases, the ROI for operating a Masternode is a lot lower than most people would like it to be. This is nothing to be sad about though, an ROI as high as 20–500% is quite common, especially for new projects that added Masternodes as feature quite recently. Additionally, consider that by running a Masternode, you are essentially generating a passive income stream with little effort for maintenance.
Masternodes attract investors and developers at the same time. For mid- and long term oriented investors, the Masternode collateral can be put to work and earn interest. Crypto project leads and independent developers additionally love them for their special capabilities and makes them feel like an important part of the project.
For that reason, crypto projects with Masternodes will attract more and more investors in the future, having a great chance to outperform currencies without Masternodes in the upcoming months/years.
The following Masternode cryptos have been picked after carefully evaluation their codebase, adoption and unique feature sets. The result is a mix of master node crypto currencies that have a great chance to still exist in a couple of years and either provide or will provide useful services to the outside world in the future.
All data and numbers have been verified a couple of days ago (around January 11th 2018).
Masternode Pick #1: PIVX (https://www.pivx.org)
Masternode Pick #2: MUE (https://www.monetaryunit.org)
Masternode Pick #3: CRW (http://crown.tech)
An online calculator can be found here.
Masternode Pick #4: SIB (http://sibcoin.org)
As with every investment, asking yourself a couple of questions about the fundamentals of a project is essential to your long term success. I can’t cover all possible questions here, but some that you will always want to look into for Masternode crypto.
These questions are NOT about the potential interest to be earned, but about the project’s likelihood to succeed.
Is the documentation of the Masternode setup process well written?
This is very important. Good examples are https://pivxmasternode.org/masternode-setup/ and http://dashmasternode.org/setup-your-own-masternode/. Missing, incomplete or bad guides usually indicate a potential lack of motivation and/or knowledge by the developers.
Does the Masternode implementation serve a specific purpose on the network?
This one is tough, but worth digging into. Do the developers have a vision for the masternodes besides the usual “DarkSend / SwiftTX” feature listing? Can masternodes be used for governance / voting? Are other forms of masternodes (eg. $CRW system nodes) planned that show the ability of the devs to think out of the box. Worthless Masternode implementation are one of the most favorite developer features to pump a coin for short term gains.
Are the sources for the project available?
Don’t bother with projects that announce Masternodes and don’t have the code available. I have seen bad projects selling their “future masternode plans” in form of ETH tokens. Of course, many of them never actually delivered.
Can the Masternodes be setup and controlled via controller wallet?
A controller wallet setup for Masternodes is the only way to keep your Masternode collateral really safe. A setup guide with the collateral on the Masternode system itself showcases developer incompetence. Ideally, the Masternode collateral can even be held within a hardware wallet. Unfortunately, this is only supported for $DASH & $PIVX (soon) right now.
Does the recommended default setup involve Windows or a Raspberry Pi?
Just don’t. It’s only ok for the “controller wallet” part.
Is the amount of overall Masternodes in the network stable / increasing?
For long term success (and income), you want to be part of a healthy network. On the other side, too many Masternodes mean less rewards short-term. Great popularity of a Masternode coin often leads to increased prices at some point, just as with increased hashrate for PoW coins.
These are only some of the questions that are interesting, i hope you have an idea what to look for by now.
Sites for masternode & ROI research
Thanks for reading that far ! I hope you find some interesting pointers in this short article to get you started with Masternode fundamentals. May you pick the right ones now and enjoy some great profits in the near future.
Have a great one!
BTC donations welcome and never forget:
Have fun, this is crypto after all!