Investing in Masternodes? Read this!

Masternode coins, of which are there are some 360 now, are notoriously risky. You have to be part crazy, really smart or really stupid (depending on your point of view), prone to a bit of luck and particularly thick skinned to even think about getting involved here. This is a festering, animated swamp of creative genius, scam artists, dodgy characters, devout believers and innocent investors in a dangerous, unregulated mess. It’s daunting, easy to get caught out or taken for a ride, and notoriously hard to make money. BUT, if you can pick one winner, it can make up for dozens of losses. That, I guess, is the lure.

This is the story of our early endeavours into this market, the mistakes we made and the noticeable difference in thinking between generations that, in the end, shaped our strategy. My hope, in making public my embarrassing initial failures, is that it may help others who dare to walk the same path.

My business partners and I had trouble with the figures being banded about right from the start when we first started looking at the masternode sector in the last quarter of 2017, when there were just a few dozen coins. Two of us are approaching our fifties and have been around the block a bit. We’ve owned and sold businesses, some of them quite big, invested in tech and speculative stocks and like a bit of risk. We knew, absolutely and positively, that ROI figures of 44,000% just don’t happen. Our much younger, and equally less experienced, partner was, however, convinced we had tapped into a new paradigm designed for the ‘I want it now’ millennial generation. His enthusiasm was infectious, and although our older brains remained suspicious, we heard him out.

high roi
Screen grab from today’s (16th July) top ten on masternodes online. Those ROIs don’t look suspiciously high at all do they? Payback of my $3346 in just 72 hours? Yes, please!

His pitch convinced us to have a look and invest a little more money into this area that we hadn’t previously explored. So we did. My older business partner and I researched ideas, teams, twitter feeds, white papers …”fundamentals” as Warren Buffet might say. He simply came up with the ones that had the highest ROI. It seems we were at total odds in terms of what to invest in, one that was interesting and reflective of age and attitude.

His argument was that since masternodes are naturally deflationary (the more masternodes that join, the smaller the share each node gets of the total payout), we should pick the highest ROI and ‘chase it down’, getting the money back quickly, making a profit and then selling the node to move on to the next one. Since the risk was high anyway, this would – surely – be a way of minimizing the risk.

On paper, we could see the argument. It’s profit centric and mercenary, and it – theoretically – reduces the risk because it starts with the assumption that the coin will fail. Since over 90% do, it’s not an unreasonable assessment. And let’s not forget that whilst our business partner is very young, he is undeniably smart. But even so, us old guys were not really comfortable with it. We wanted to find projects we could support and grow with over time, gradually reinvesting profits into the sector to build a long term and stable portfolio of coins we were proud to be associated with. In other words, the 10% that might make it. We were therefore at an impasse.

The next few days saw strong debate between the partners – each was not convinced of the other’s strategy and it was a classic case of youthful optimism meets experience. In the end, us ‘grey hairs’ decided to yield to youth with the thinking that it was possible that the new generation was on the ball more than us in terms of the thinking in this crazy new sector. But we still weren’t comfortable with it, so we set a few rules. We set a limit of few thousand dollars to invest and no more. We would go all in on the fast return strategy first with the understanding that if it worked, we would then funnel the original funds back into the long term projects us oldies had identified. Our youthful business partner would be free to play with any profits as he saw fit. If it didn’t work, we’d have to go for a slow investment process and forgo any income from this part of the operation for some time whilst we rebuilt. We all agreed and pressed the button. It was a total disaster from the outset.

Whilst our colleague had done a few dry runs as examples to prove the outcome, the reality was very different. The ROI dropped so fast that it was impossible to shift the coins through the exchanges fast enough and in almost every case, the value dropped to zero before we could release the capital. There were a couple of ‘go nowhere’ coins that held on for a bit and one or two that made a (very) quick short term profit, one even came back from the dead, but overall we managed to wipe out over 80% of our initial pot within a short period.

To add insult to injury, two of the coins we’d picked for the long term strategy (and therefore had not invested in) on either fundamentals (Gin coin) or market appeal (Bitcoin Green), rocketed in value and returns within weeks, Gin from $800 to $13000 and Bitcoin Green from $3500 to $23500, and yielding a steady daily income of over $100. Of course, we’d picked a bunch of duds as well, Coin2Fly (great case, but no backing as it turned out), Vantaur and Rover (lost their way) and Ganjacoin (good initial results, but drifting since then), but we expected that. At the end of the day, in such a high risk field, you’ll never get close to 100% success in picking the winners – you only need one or two. We’d done it on our first go and then not acted on it.

Of course, we all learned a lot from this and arguably it was an expensive mistake to prove something we already knew – if we we’re totally honest with ourselves. But if you can take those learnings and avoid the same mistakes we made without spending a penny then the average cost for each of those learnings will keep dropping over time, right? It’ll almost be worth it a few months, surely?

So, let’s recap to be sure:

Yes, it’s a new tech and a new angle on that new tech, but people are the same and the same rules of behaviour and investment apply.

The best projects and teams will work and yield returns either sooner or later. ‘Flash in the pan’ projects are just that and extremely unlikely to yield any returns.

Do not chase the ROI – it will beat you every time and then laugh at your futile attempts to do so.

This is an extremely risky investment, even more so than mining or putting money directly into coins. Assume you will lose most or all of it and proceed only on that basis.

Finally, what became of our masternoding dreams? Well, we still have them and we’re all wiser for the experience. Our youngest partner has learned that perhaps these old guys DO know a few things after all and we now work on the long term strategy together, albeit at a frustratingly slower pace. And us oldies have learned not to get carried away on youthful energy or optimism on something that we really should have politely, but firmly, declined to do. In short, we should – and did – know better, but still did it anyway.

But despite all of this, we came out stronger in the end and have a better working relationship as a result. For the moment, we still pursue the masternode dream and have picked more duds – this time together – and a few hopefuls that look promising long term. We’re still a way off the value we originally had and the deflationary nature of masternoding means that constant research and monitoring of the development teams is required. It’s still crazy, unpredictable, dangerous and extremely risky, but we maintain that there’s a few diamonds in the rough there somewhere. With heavy investment expected to come in to the market in the next months or years, I personally think it’s wise to pick up a few masternodes now that show some promise as it’s almost certain dev teams will suddenly pick up the pace as the market starts to grow in value.

But, as had been shown above, what do I know?

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