The Masternode industry is a market unto itself within the world of Blockchain. As a niche part of the crypto market, investing in a Masternode coin can be tricky — even for experienced Crypto Investors. The aim of this article is to give you a few tips on how to identify good investments in the Masternode market, but it is not comprehensive. The topics written in this piece are strictly the opinion of the author. It is solely the responsibility of the reader to determine for themselves how to spend their money.

Introduction to Masternodes

For those of you who may be completely unfamiliar, Masternodes are a feature primarily of Proof of Stake coins. Most often, these coins offer a two-layer blockchain, with the layers being staking and masternodes, respectively. The Masternode layer of the network is used to enable functions like private and instant send, while the staking layer of the network validate transactions. Masternodes get their own dedicated portion of the block reward, making them a valuable part of any passive income portfolio.

To run a Masternode, a user must purchase a given amount of coins as collateral. This collateral is then locked in an address in your wallet, and is run on a remote host to maintain its uptime. For PoS coins, while your node is live it is entered into a rotating queue for rewards. The ROI of a Masternode depends on the size of the block reward and the block time. Since there are a limited number of blocks minted in a given day, more nodes on a network means a lower ROI.

Identifying Good Investments

In the bear market of 2018, the Masternode crypto sector experienced a decoupling from BTC and had a mini bull run of its own. This led to the market flourishing, with dozens of promising projects emerging onto the scene. Unfortunately with all of the promise came bad actors, who sought to scam unknowing investors out of their BTC through exit scams and premine dumps.

To read more about these scams, check out this article.

Almost all of these scam coins were forks of the popular coin PivX, and had zero actual innovation to the underlying technology. Additionally, the “teams” behind these projects were completely anonymous. (Spoiler alert: they were all the same person!)

Be skeptical. If a team is completely anonymous, do not invest in that project as a rule of thumb. Blockchain is all about transparency and innovation. If a project brings neither to the table, why should you spend your hard earned money? Look for actual use cases. While these don’t always translate to value growth, people must have a reason to actually own the coins other than to create more Masternodes. A coin that is purely a Masternode coin with no use case is just a disguised ponzi scheme. If you are invested in a project like this, be very careful. Do not fall for the “High ROI” trick. Many projects lure investors with 1000%+ ROI, and it is completely unrealistic. That kind of inflation rate only leads to rapidly declining coin value. Think about what this high ROI actually means — the coin supply is increasing faster than new people are buying coins. Basic economics tells us that if supply is greater than demand, prices will plummet. Looking at nearly every Masternode coin’s chart with high ROI, basic economics is not wrong. Does the project behind the coin have a plan for the future? What happens if the one use case behind the coin is not successful? Will the team quit, or continue to develop and innovate and create value? These are all questions that must be considered.

There are a lot of useless Masternode coins on the market, but among them are some good ones. With thorough research and a bit of luck, you might be able to find the next DASH (whose Masternodes were valued at over $1M in 2017). Good luck, and happy noding.