CC#016 - Masternodes: A Crypto 'Property Investment'?

Why masternodes may be the perfect cryptocurrency investment.

The Three Levels of Investor

When investors think about cryptocurrency, most usually think about bitcoin or, if not specific tokens they have invested in or want to invest in. This is the first level of investing in crypto. At this level, the reasons for owning a crypto project can be vague, varied or even vulgar; in the case of dogecoin, ‘because it’s fun’. Nevertheless, this is how most, if not all, investors begin their crypto journey.

After some time (maybe after losing money), investors want to understand more and become second-level investors. Second-level investors may want to understand concepts such as the underlying blockchain technology (‘what is the transaction throughput of Ethereum?’) or the code behind a Web3 application. Eventually, it may become second nature to consider the properties of a specific blockchain protocol or even the programming language on which a particular token operates. Second-level investing takes more time, effort and due diligence than the first level of investing but, on average, usually yields better results.

The pinnacle of long-term value investing with crypto, I believe, is with high-quality masternodes. Masternodes represent a third level available to sophisticated investors where they (ideally) not only understand their investment in depth - or have the capacity to - but own a part of its infrastructure. Their investment not only generates a return through price appreciation - in the same way that first-level investors do - but also generates a yield. This yield has the power to generate a liquid, risk-free return - even if the token price falls!

At the third level, investors ask questions such as ‘what is the best way to ensure my crypto cannot be hacked?’ and ‘how can I maximise my return without relying on a speculative price increase’? Both of these questions can be solved using masternodes.

Masternodes are property investments for the cryptocurrency sector. However, masternodes are actually superior to property investments as they are liquid, low-risk, relatively short-term and can be quantified using a valuation methodology invented for stocks that has been in use for almost a century called value investing.

As anyone familiar with The Intelligent Investor (as published in five editions by Benjamin Graham and later popularised by Warren Buffet) knows, it takes time to generate the best returns. The book laid out techniques for determining the fair value of stocks and investing in undervalued securities. It’s no secret that Warren doesn’t like (or - by his own admission understand) crypto, but precisely the same principles used during value investing can be applied to any crypto project - especially masternodes - since these projects resemble small technology companies, as we shall see.

But how do you actually own a masternode? What makes a masternode ‘high-quality’? What are the risks with running a masternode, and how can you reduce these? Finally, how can you determine the most attractive masternode opportunities?

Let me show you.