Getting started with Masternodes
This week's guest writer is Camelia (@CrypLady), she is a masternode-enthusiast and community manager for multiple masternode and non-masternode crypto projects like BetweenBlocks, IOP and TE-FOOD.
Many people have been asking me lately about masternodes. They heard about them, but have no idea what they are, or how to get started. I found out about them somewhere in a forum, I believe it was in November 2017. I was attracted to the idea of storing my coins in a wallet and let a vps (virtual private server) do all the work, while I receive rewards for it. I see masternodes similar to a savings account, but with much higher interest..
Back in 2017 masternodes were still a novelty, while 2018 really is the “Year of the masternode” as the sector have become very hyped.
The chance of making profits is possible, but the chance of getting scammed and losing your hard earned money is even bigger. Great masternodes project are out there but there are many more coins created just for the purpose of having masternodes which isn’t sustainable and sadly investors have a very big chance of losing all their entire investment in such projects.
So, after this you’re probably thinking, “is it a good idea to start investing in masternodes”? Yes it is, but you have to be very careful, and take your time to study a project. Very important note: you should only invest in masternodes if you are a long-term holder (that way you have the best chances at getting good profits out of it).
The first (and in my opinion the best place) to start your quest, is MNO. MNO is a website that displays an overview of 434 masternode coins (at this moment), which shows the price per coin / token, price for one masternode, ROI (Return on Investment), the price change in percentages for the last 24 hours, and many other statistics. When I started out in November 2017 there were around 40 masternode coins which were displayed on this website; the masternode ecosystem has undergone a tremendous growth since then.
This is MNO's website:
The most convenient thing is that data can be sorted on different options, like ROI (from the lowest to the highest or the opposite), market cap, and so on.
I started out by looking at my budget; personally I think that’s the most important thing when investing in crypto in general: do not invest more than you can afford!!! In case it all goes wrong, you still have food and a roof above your head. I’ve heard cases of people that commited suicide because they lost all their money in crypto, but let’s not dwell on that too much.
So, budget. Once you’ve got that all sorted out, you can start looking at the particular range you can afford. There are lots of good and decent projects out there at this moment that are very affordable. So invest now, and in a few months you can have some big profits.
The first thing that you could check is their website. Does it look a bit ok, with a roadmap or white paper? You can start by studying those, and if you like what you see, join the community. Almost every project out there has a discord server, which is shown on the left side of the information of a particular coin / token on the MNO website.
A project stands or falls with its community: is there a use case for the coin you are interested in, is there a large and supporting community? If yes, the project will likely still be around in a few months. Enter their Discord server and observe what is going on there: are the devs helpful and responding to requests? How are community members interacting with each other? Is there lots of FUD (Fear, Uncertainty and Doubt)?
Please, take your time for these observations, at least one month. If you do less, there is a risk that you might lose important information. I really want to emphasize that I believe this is the most important factor when doing research at projects.
Another big consideration is liquidity! If a coin doesn’t have liquidity it means that not many people want to buy it making it very difficult to sell the coin. It’s a good thing if a coin is listed on multiple exchanges, that way you can sell rewards from your masternode whenever you wish to. It also means that a project is well-recognized in the crypto ecosphere. Another thing that might be interesting to check out is the block reward: is there a dev fee in every reward? If yes, that’s a good thing; it keeps the devs motivated to work on a project.
You probably heard the word “governance"; it means that masternode holders have the ability to vote on proposals (such as Polis and Terracoin for example). These two projects have made it very easy to cast a vote. You can do it directly from your wallet. I'm pretty sure there are many more projects out there that have this kind of system, but I've been following these two projects the most up until now. A project where the community has a voice is obviously a very positive thing.
Make also sure to look at the premine. What is it exactly? Cryptocompare.com states:
A premine is where a developer allocates a certain amount of currency credit to a particular address before releasing the source code to the open community. This is often done based on the reasoning that they need to pay for certain features such as listing on exchanges and development of core features such as block explorers.
A premine shouldn’t be more than 3% of the maximum supply. I find anything above that a reason not to invest; devs have too much power to control the price of a coin (the so called pump and dump schemes). It’s also a good thing if a project makes public the wallet addresses the premine is stored in.
Now, the most tricky part of it all, the ROI (Return on Investment). As the prices are fluctuating the whole time, it’s very difficult to predict a return on your investment. An example: you bought a masternode for 3000 €. That masternode is now worth 300 €; you haven’t sold any of the rewards your masternode got for providing computational power to the network for the last two months. You have received a total of 2400 tokens as a reward in this period. According to the current price, your rewards are worth 64 euros at the moment. If you add it up to what the masternode is worth now, than you are a very long way from making ROI. The stats that are shown on the MNO website are averages based on actual block rewards over the past 24 hours.
Below you can see an example on masternode statistics:
(I have deleted the actual name, since this is only for educational purposes)
But as prices can be very volatile, your masternode might be worth €6000 a week later. Then you have even doubled your ROI.
You can try to follow price charts for a while (preferably a few months) and see how it behaves during bear markets (periods when BTC and most altcoins drop a lot in price), but that’s not a big indicator for the future at this moment. Many good projects have lost significantly in price.
Last but not least, the development of a project itself. What has happened inside a project since you have started to follow it? Have there been updates, new partnerships, or improvements? Anything is good. Projects without updates for months are a red flag anyway.
After all of this research you probably have one or more projects in mind that you wish to invest in. The time has come to set up your masternode(s). You can do it yourself, or you can use a masternode hosting service. There are quite a few masternode projects out there that concentrate on hosting masternodes, such as GIN, MANOCoin, Gentarium and so on. There are also hosting platforms such as Nodeshare, NodeSupply, etc. You can find many masternode hosting platforms, just by doing a search through Google.
When I bought my first masternode I used a hosting service, simply because I was afraid of using command lines in Linux. That worked out well for a while, but there are also some disadvantages. First, the price: a hosting platform is more expensive then when you are using a vps from a provider. A second problem was the speed of the hosting platform to update your vps wallet: when a coin has an update for its wallet, you have to update both your local wallet and the vps wallet. Masternodes have a “cold setup”, which means that the collateral for your masternode is kept in the wallet on your own pc at home; that wallet communicates with the vps wallet through the masternode private key. Because of this, there will always be two wallets.
While you may update your local wallet pretty quick, I've seen that some hosting platforms were not that fast in updating the wallets they host. Result: errors, a non working masternode and missing out on rewards.
After a few months I decided to give it a try and start using Linux so I can set up masternodes on my own. It has gone well and I recommend doing the same: the guides on how to set up your masternode are very detailed. And if you get stuck, you can always ask for help in the particular discord server of your masternode. There is always a dev that is willing to help, or some members with more experience. It feels empowering for me to be able to run my masternodes on my own, without the need to rely on a hosting platform.
But let me give you a warning: when asking for help in a discord server, please make sure to check whom you're speaking with. Check the roles that a person has in discord. There have been cases where people got scammed because they were talking to someone pretending to be from the team of a coin. Do not let that happen to you!
The masternode ecosystem is pretty new, but it's very exciting to be a part of it. I love all the changes and developments that are going on. I try to stay up to date, but with 422 coins it has become quite a daunting task. There are a few good resources that do help with this. The first one is this website, masternode.buzz.
You are also more than welcome to join the MNO telegram channel https://t.me/nodeshare.
If we want to reach mass adoption of masternodes, or crypto in general, the first thing we need to take care of is education. I hope this article helps you out a bit on your exploration of this new and exciting ecosystem.
As always, This is not financial advice. Do your own research, and consult a financial advisor if needed.