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Masternodes ROI

By Rafał - 2018-12-16

What is ROI? 

How it works in masternodes?

Higher is better?

What is ROI?

Return of Investment, also called ROI, is a standard financial measure used to estimate the current and future investment returns over time and is based on various metrics to be determined. ROI is most widely used to evaluate various types of investments in terms of how profitable they are. It gives the investor an insight to determine if a specific investment is worthwhile or not as well as help them to compare between two or more investment options. However, it is important to note that regarding investments decisions, ROI is a single criterion amongst many others that must be taken into consideration before opening a new investment. 

 

Even if the highest ROI might be the most attractive in term of future returns, the reality is, in fact, quite different and require making extensive search before putting any money in the project. As examples, we must analyse the team behind the investment and the reputation a company has built over time to determine if the possible investment is a great or bad solution for long run. In this document, we will emphasize ROI in the masternode sector and how it is calculated accurately over time. 

 

Most importantly, it is mandatory to know that ROI is a percentage and thus, is subject to multiple fluctuations depending on the criteria taken into consideration during the calculation.

How to calculate ROI?

The exact formula to calculate the ROI is quite simple:

 

(Money earned – money invested) / money invested * 100

 

If we take an example of a ROI in financial terms with an initial investment of 1000 dollars and a yearly return of $1100 total, we can consider the following ROI:

(($1100 - 1000)/1000) * 100 = 10%.

From our example, the ROI is rounded at 10% yearly. 

 

Using the same formula, yearly earnings of $2000 would represent 100% gain. The standard ROI definition is quite simple to understand and apply in the financial market but largely differs when it comes to the masternode sector.  

ROI in Masternodes

In the crypto sphere, numerous sites claim that anyone can make a lot of profit from specific coins in a bid in order to incentive investors to choose specific masternode coins. The truth is that most of those values they display have limitations and may not be accurate in the long run (but still very helpfull).

Masternodes.pro ROI
masternodes.pro

How ROI is calculated in masternodes?

Masternodes ROI is quite different from traditional investments as you know it. The way its returns accumulate is also different from what is obtainable from your everyday investment. When it comes to masternode projects ROI, the percentage depends on:

 

– The reward structure defined during the creation of the blockchain and the project

– The number of active nodes as rewards are shared daily between all the masternodes activated in the network.

– The price of the coin which might differ a lot with crypto volatility. While in traditional market, ROI is often counted in dollars, in the crypto sphere, ROI must be calculated in coins and not dollars as the market can change completely in minutes. With the underlying volatility of crypto markets, calculating the ROI in fiat earnings does not really represents the yearly ROI and the benefits of this investment.

Reward structure

Reward structure is something that defines how much coins a masternode will get from every block mined on the blockchain. The reward of the blocks tends to decrease in the long term with the notion of Halving, considerably changing the associated ROI and / or the price of the currency per unit.

 

Simply put, the halving is a preprogrammed functionality of supply in the Bitcoin protocol that reduces the block reward by 50% at a specific block height. In the case of Bitcoin, the halving occurs roughly every 4 years (every 210,000 blocks exactly). The Bitcoin network programmatically decreases how much new Bitcoin is mined, reducing its rate of supply. This principle also applies for other coins such as Masternodes where the block reward is cut in half as well after a certain block height.

GIN rewards
GIN coin reward structure

Active masternodes

Of course, masternodes will not receive rewards from every block. If there are 1440 masternodes in the network and block time is one minute, every masternode should get 1 reward per day (1440 minutes = 24 hours). 

 

On the other hand, if there are 100 masternodes, each owner should receive a block reward almost every hour/hour and a half. We can compare a network of masternodes with a line of persons: A masternode is a person standing in the line, when he gets his reward he is going to the end of the line and waiting again. More active masternodes means less reward per day. Less rewards means lower ROI (in coins). 

Price

The price of the coin is the most important consideration for many investors. This is what determines the real profit in dollars or bitcoins. If the price fall too much, ROI would be lower or even not sustainable to recover the investment. In the same manner, if the price is stable or appreciates over time, a good profit must be realized over time. These explanations are also great advices when it comes to invest in a masternode project. Masternode projects are long term investment that can be really profitable, even in a bear market, and recover the first investment might take some time regarding the market conditions.

 

For Example:

During the last crypto bull run, DASH masternode costs was estimated at around $1,4mil. Now it is “only” around $80 000. So, DASH ATH (all time high) was about $1500, and now around 80$ (24.04.2020). Now let’s take into consideration the active work of the Dash team and community to expand the brand and the project vision over time. This should lead in a price raise over years and thus increase overall ROI for masternode investors. So, if an investor buys DASH now and the price goes up 100%, the ROI is also much higher than previously expected. The investor will still have coins from the rewards that are worth much more than the coins originally bought to set up the masternode.

How to look at ROI?

ROI is a quite important metric when it comes to financial investments. It tells how much can be earned over time and how fast more masternodes can be setup with upcoming rewards. We consider that a long-term investor will look to set more masternodes to earn more until he is completely satisfied with his earnings.

 

How much is enough? That depends on each person expectations and targets. It could be 5 or 50 masternodes. However, if you think that developers are not doing great or the project is risky you should set up 2 masternodes and then sell rewards to get your investment back. The most important things to take into account with masternodes is to recover the initial investment as soon as possible. You should look at the ROI to know short-term profits. By profits I mean how many coins (not $) you will get or how fast you can set up second masternode as only few projects have accurate yearly ROI.

 

Also, you need to know when to sell. If the project is developing nicely but price is still falling just stake your rewards, join pools and set up more masternodes. There is no point to sell under losses. You bought for 5000 sat. and now the coin is worth 500 sat? Why would you want to sell at this point in losses?

 

A common sentence used in crypto is: “You don’t lose if you don’t sell”. This completely represents the mood with nodes. If the volatility of a coin generates a huge drop in the price, then it is recommended to be patient until it recovers. Most projects have active development and still follow a simple rule: What goes down must go up!  Of course, if the project is dying you have no choice, but we want to invest in good projects, and not scams. This is one reason why you should make proper analysis and evaluation before investing in any masternode project.

Is a higher ROI better?!

You should know how it works now. Almost every project at the beginning, when there are only few active masternodes has an extremely high ROI. That is natural but if masternodes number is increasing and ROI is still very high it is not a good scenario. There is something called inflation. It is what makes Bitcoin great and a lot of other projects bad. If the emission of new coins is too high and there are not enough new investors to buy that coin, price will drop. It is an economics principle that there must be demand for price to increase (Market nature is still the opposition of demand vs offer). 

 

Therefore, managing masternode earnings can be quite complicated at start. How to recover initial investment without dumping the market when the demand is low? It all comes to experience and can differ with each person.

Summary

ROI is important because it shows you how much can be earned with an investment. Sites with stats are important too, but you need to read in-between the lines to understand other factors that you’ll encounter during your journey. ROI never should be your main reason to invest in a coin. We all want high ROI but it needs to be reasonable. 5000% is not reasonable, 100% is great, 500% is awesome but risky. 1000% with a lot of active masternodes is a long-term suicide and should not be considered as a solid investment solution to develop a passive income.