Quality Focused. Masternode & Staking.

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2019 Masternode and Staking Predictions
  1. Masternode hosting(for the myriad of Dash/Pivx/Eth forks) will fall to $1/mo or “Free” with another model to drive revenue to pay for operating costs.

    • The last 4 months have seen a strong surge of services, direct pay or coin based projects, that offer masternode hosting services. These services which were around $15/mo at the beginning of the year are now down around 66%, as I predicted, to ~$5/mo with the newer services being offered and there is no reason to think we won’t get below $1 as more automation and infrastructure services begin to make volume and commitment deals with IaaS providers like AWS, Vultr, Aruba and Digital Ocean. There are already services which prescribe to take 5% of monthly rewards for the coins they support. Percentage of or direct pay revenue models will continue to fight for market share and in a nascent market such as masternode hosting the war will be highly competitive. Coins where masternode hosting is their primary business model will need to find another service or capability to provide within crypto to maintain utility for their coin. Masternode hosting coins that do not adapt will see their market share evaporate and be unable to pivot and recover.

    • Generally speaking I don’t see a need for a coin to provide masternode or stake hosting services and am skeptical of projects where this is the primary capability being offered for holding or using the coin. Perhaps(discussed below) when there are truly trustless stake pooling services available there will be a need for these type of coins as “middle-layer” cryptos.

    • The increase of existing coins that add witness nodes, masternodes or staking to their protocols will have rigid SLA(service level agreements) requirements and operational minimums to maintain performance on their networks. The need to provide infrastructure services for these projects will cause downward cost pressure on projects that have no or limited requirements to squeeze the most they can from Docker containers and other VPS based efficiences.

 

  1. Proof of Stake(PoS) or Delegated Proof of Stake(dPoS) consensus protocols will be 50%+ of quality cryptocurrency projects

    • The first 9-10 years in crypto were primarily driven by Proof of Work(PoW) projects as a catalyst to drive and inject accepted capital into the cryptocurrency sector. Initial investment in hardware and energy costs spurred the narrative of expending valued resources on supporting a network. You might want to reference my quick video on Coin Value Composition for context. Now that cryptocurrencies have shown the world that they aren’t going away(the real outcome of the 2017 bull market), the entire crypto sector is legitimized and we’re moving onto the next phase. Value can now be introduced directly into cryptocurrency networks by using market value assets(fiat, commodities, cryptos) to obtain the necessary collateral for cryptos with Proof of Stake(PoS), Delegated Proof of Stake or other consensus protocols. This shift will continue to evolve the legitimacy of cryptocurrency as a viable investment market and also slowly change the narrative that PoW is the only way to produce valued digital currency and assets. Currently PoS and Delegated Proof of Stake(dPoS) coins have the lowest barrier of entry for investors, retail and institutional, to enter the cryptocurrency landscape. Ultimately the best block reward design for coins over the next 2-3 years will likely be a hybrid model of Proof of Work and Proof of Stake or some other consensus protocol in conjunction with Proof of Work depending on the block reward schedule. This will only be necessary until many of the known and unknown attack vectors for PoS/dPoS are tested and addressed.

 

  1. Smart contracts replace shared services for staking and masternode collateral pooling.

    • In order to maximize engagement rewards, or what many still call “passive income”, many investors use shared staking and masternode pools and services to increase the likelihood of generating rewards, similar to mining pools with Proof of Work. The issue with staking and masternode pools is that you often need to trust your collateral with another entity. You often see reports in Discord and Twitter of these services being hacked and scammed. Ethereum is working on smart contracts for staking pools which will enable this service to be done in a trustless manner and the need for these services should quickly dissipate. Smart contracts are perhaps the most disruptive element of crypto as they aim to provide complex transactions in a trustless manner so securing shared staking and masternode pools seems like a piece of cake in the short term.

 

  1. Terms like staking, masternodes, validators and witnesses blur together and become synonymous with each other as minimum collateral thresholds become the focus.

    • Masternodes generally present a minimum collateral threshold for network participation. That minimum threshold is more often than not the maximum threshold as well. To put it simply, you need an exact number of coins for a masternode. With Dash for example it is 1000 DASH coins. I often see many people mix up the terms used for staking and masternodes because there are many commonalities. Both require some number of coins to be held to participate in network activity. Masternodes require a lock-up of coins in a specific address to function as a masternode and staking(PoS) requires that you have coins present in a running wallet address. With delegated Proof of Stake(dPoS) you’re holding coins and receiving votes to get a seat at the table. The behavior is the same, you need to hold coins to participate in the network. Masternodes, especially those with a spork, have a mechanism to enforce distribution of rewards to masternodes, while staking uses coin age, coin weight and some randomness to do so. The outcomes are the same, rewards for network validation and security services rendered. I anticipate that this will quickly evolve into coins requiring minimum thresholds for collateral which will mimic the requirement of masternodes but also leave no cap and distribute rewards proportionally based on block reward allocation or frequency of reward for those addresses with more than the minimum collateral. It wouldn't be surprising to see that masternode themselves will become critical to consensus and finality activities just like validators do in dPoS protocols. As you can see, all this stuff already sounds like the same capabilities and outcomes regardless of the acronyms or terms used.  

 

  1. Significant increase in KYC requirements to run masternodes or staking activities as coins mature and prepare for regulatory measures.

    • As projects continue to mature and deliver financial capabilities the need to know who is participating within your network will become a crucial requirement. Revealing identities is generally against the spirit of crypto but the growing concern of regulatory bodies all over the world will results in many cryptos playing it safe and requiring KYC to demonstrate some amount of due diligence. KYC could end up being done with a legitimate business registered in crypto friendly countries or localities which would potentially obfuscate the personal identities of investors and offer cryptocurrency purists some amount of the privacy they covet. Look no further than masternode projects like Remme, Ontology and Republic Protocol for early examples of this.

 

  1. Lack of formal governance exposes a major issue for pure Proof of Work(PoW) coins as their community growth is stifled and network effects suffer as masternode coins with governance take advantage.

    • Hash power driven decisions are devoid of the necessary presentation, discussion, and communication of key information to support one’s proposal and position. Decisions with no structure offer no transparency to the community of investors, miners and users. This has had a direct effect on technological and community network effects as they haphazardly splinter with each chaotic fork. These are critical outcomes that often lead to avoidable fall out on multiple fronts. Since there is no governance process, network participants have a very limited way to express suggestions, thoughts and other information that should be considered that could possibly assuage others concerns. Users, the real MVPs are caught in the middle betweem miners and investors. If you look at Bitcoin itself and the last 3 years with Bitcoin(BTC), Bitcoin Cash(BCH) and the upcoming Bitcoin SV fork it is clear that while it is open and free the lack of organization and loudest voice in the “room” often drive the discussion, or lack thereof. It is clear that the next move up in crypto is not so much on a bar chart but on the Web3 stack. The decisions that will be required to support n-layer solutions on top of the consensus protocol can’t be done purely by miners throwing hashpower around as they threaten the base of the stack each time there is a major decision to be made. Settling for either chaos and fallout or gridlock and inaction is a non starter for any project. Masternode governance even in its early stages provides a foundation for material review, structured decisions, some transparency and more importantly, all voices to be heard and documented via voting. Ultimately I think we could start to see the cracks in the foundation of Proof of Work but not from a security perspective. The doors are very secure and locked. However when it comes time to perform maintenance on the property it will either be broken into little pieces or diminish in value due to lack of necessary upgrades.