And at that time Dash was around $5-$7 or less. Masternode rewards were around $30 per month, allowing a hosting cost of, say $27 per month to be fully recompensed with a 10% margin to spare.

See ? Evan Duffield established the idea that:

#nodesAreNotACharity
#setMarginsAtParity  

That's why Dash was an efficient store of value back then - investor's capital went into capitalising the chain and not holiday cruises for masternodes. But as the price rose, hosting costs did not rise with them and so more of that capital should have gone into mining to keep the supply scarcity high and capitalised. Instead it didn't and masternode margins kept getting more & more bloated which is why we are now suffering from catastrophic deflation.

What you need to understand is that Spork 21 and its origins is actually a very cleverly thought-out strategy by Ryan Taylor to finally allow the Dash governance mechanism to work in a truly decentralised and autonomous way.

He deliberately promoted a store-of-value mechanism that was so obviously flawed that the community would be forced into a phase of self-introspection and reflection to reconcile what was going on in markets with its own understanding of how its investment functioned. That would then lead to a decoupling from centralised thinking and an abandonment of the "follow the leader" form of governance to a truly conscious investor community where the governance system matured and came of age.

Clever stuff

Yes for users. No for investors.

If you invested in Dash at $500 and now it's $65 then it clearly hasn't added value to the network for investors, has it ?

On the other hand, if you're only "spending" Dash rather than investing in it to hold (e.g. you're using it for a cross-border transfer or something) then there may be some utility value depending on your needs.

This is an important distinction when it comes to store-of-value criteria. Because for the temporary "user" it doesn't matter what the value of Dash is as long as it holds its value for the couple of hours you're using it, whereas for the long term investor it sure does, so they are distinct markets. The big ICO tokens attract investment from targeting massive utility, like in the 6 or 7 figure transaction range per day. Or hosting bond offerings or whatever.

On the other hand mined crypto sustains its value through mining, by establishing an equivalent level of scarcity to the fiat value invested in the mining cost. (i.e. if I "invest" $1000 in Dash mining then that should roughly correspond to the value of the coin because my $1000 directly contributes to raising the difficulty through a process called competitive mining). That form of store-of-value works even if there's no or very little utility which is why you can see for example Bitcoin barely ranking in the top 10 in this list but still out-ranking everyone else for marketcap. Or Dash is 7 places above Monero for activity, but only a quarter of its marketcap.

In bitcoin, you can invest $100,000 in mining equipment but to get any coin out of the chain you'll STILL have to contribute to raising the scarcity value of the supply by competing for it. So your reward is effectively a certificate of your investment. A straight swap - you stored your capital value in the chain and got a ticket for your contribution. That's why it has trading value in the secondary open market since it's the only way anyone can acquire a coin without investing in mining equipment themselves and competing.

Lets now turn our attention to a special kind of "miner" that exists in Dash. Here you don't even need to invest in mining equipment. Instead you just put up some loan collateral for a while and during that time you are allowed to mine at ZERO DIFFICULTY. No net investment in the chain is required (because your collateral is only lent). You mine for whatever period of time, receiving your rewards which are therefore a certificate of nothing. That's where the capital drain occurs (from an external store-of-value investor's point of view) because those coins were mined at zero difficulty, attracted no new scarcity value into the primary supply, but still get dumped on order books where they can make a profit at any price. In bitcoin, that orderbook revenue goes straight back into the chain in the form of raising difficulty. In Dash it disappears into private pockets, never benefiting the network. Is it any surprise the price only goes in one direction for 3 years since we hit maximum nodes ?

The masternode coins also undermine the trading price in other ways because they can compete with the mined supply for orderbook liquidity at almost any price above zero, so continually drive the price down. They don't have a cost base. (So this is ostensibly the mechanics by which the "loss of capital" finds its way through to the trading price).

This was not the original idea. The original idea was that masternodes would NOT be mining at zero difficulty (effectively) because the reward would be needed for funding the service layer of the network, thereby making that aspect investible. But that only works if the reward is set to a competitive level that's commensurate with, say mining rewards. So if mining is profitable at 10% profit margin then that would appear to form a good reference margin for masternodes as well. If their cost is 30$ per month then the reward should be $33 per month. If their costs are $2 million per month (as some Icelandic bitcoin miners are) then their rewards should be $2.2 million so they make $200,000 per month.

The idea of that would be to restore stability as a store-of-value (MDIA = "Make Dash Investible Again") and therefore rewards would return, except this time mainly as capital gain rather than blockchain revenue. That would be facilitated by exposing far more of Dash's blocks to competitive mining than are at the moment which would immediately raise the net opening value of the majority of the primary supply.

What's the point of a 5% ROI in Dash if it has to be paid for with a -50% ROI in dollars ? That's just the signal that we've got this balance WAY wrong. I think masternodes would far rather see their collateral value grow than their rewards grow and their collateral shrink.

You're not the only one to have noticed.

You seem to have interpreted that post the wrong way around.

It's the trustless masternode rewards that eat the capital (because they come straight out of the chain at zero difficulty).

Not the staked Binance capital, which generates a return based on economic activity external to the chain which therefore ADDS to the capital value of the chain.

You leave quite a lot out of the account.

For a start, without taking the capital loss of collateral into account, ROI is meaningless. It simply refers to how thin you slice the cake, not "Return On Investment". You can get the same kind of "ROI" from chopping a 6 foot piece of string into 2 pieces of 3 feet each. (100% ROI in that case ! Nice). To get real ROI you need to add NEW VALUE to the chain and that doesn't happen through some silly gaming of who gets the new supply just so you can think you're managing traffic to order books more optimally.

Secondly, if it's the case that the return on staking at Binance is indeed due to the balance being actively traded (which I'm not saying it does, but if it were) then at least that ROI has some real economic basis. That is to say the return comes from OUTSIDE of the Dash ecosystem and nourishes it rather than coming from the blockchain itself, thereby eating up the capital value of the chain and spitting it out into masternode pockets without them having to replace that value (in the way that, say miners do).

Just something to think about.

I think you should tell the difference between "volatility" and "long term revaluation".

We just turned all this volume that came in at the start of the year at the last major bottom....into resistance. Now a new bottom has to be found and it doesn't look it's gonna be a short trip to me.

LoL ! I suppose that's one way of looking at it.

I do not underestimate the market's ability (or willingness) to reprice profit margins to a competitive level as it sees fit. You feel free, but do so at your peril IMO.

Patience to get washed up by the tide ?

I don't think you're very bullish on Dash. I've always thought it had viability to be a top 10 coin and haven't changed that view. So when it dropped out of the top 20 and then 30 I went looking for an answer and found one.

If you were a no-coiner and had the choice between putting your capital into a coin where NONE of its miners could extract a coin directly from the chain at below market value, and another where 6 out of 10 were able to do so at zero cost, which would you pick as the more financially secure ?

I don't think our future lies in being carried along by some general investment wave since you either have distinction or you don't. It lies in thinking, being pro-active and responding to the market when it tells you you might have made a mistake.

The margin-parity price of a masternode is around $6000-$7000 (being generous) given $30 a month of hosting costs and around 10% operating margin. (Assuming miners are viable on average at that margin also). So conceivably we may stabilise anywhere between here and that level.

The beauty of that price would be that everybody's priorities would be satisfied:

 • masternodes would still be getting their beloved 50% reward ratio, or whatever it is
 • miners would still be viable because difficulty adjustments always save them
 • the market would be getting value for its investment in both mining blocks and masternode blocks since a much larger proportion of the sale of a masternode coin is going towards service provision

That's the price at which all 3 interests are reconciled under current protocol conditions.

There's only 1 loser: cruise-line operators

Because pulling numbers and assumptions out of your a**...."lets imagine, lats assume" is not something that's investible. Seeing what the market is actually doing, how it prioritises store of value and responding to it constructively instead of dogmatically....is.

Long story short = it's a self-cannibalising ponzi scheme while these masternode margins are so huge and so idle. It can't grow. Anyone with a calculator & half a brain can see that. If we get shot of them we will have a lean store of value that we can start to get behind again and that is genuinely competitive.

Bitcoin's probably heading to $100k over the next 2-3 years. That will have Dash/BTC at 0.001 unless we do something now. Does anyone seriously think you can pull a $4 million per week profit out of a finite digital commodity for doing absolutely nothing while other coins have to at least hash that value into their chain ?

#nodesAreNotACharity
#setMarginsAtParity

Indeed.

Those masternode owners have kept Dash's capital value alive. They are the the reason that new investors buy Dash because they want to keep those masternode profits populated with dollars, even though the new investors will never see any capital gain return on their own investment because it all goes towards funding masternode returns.

But we would of course still not want to see those masternodes go.

I'm not saying do away with masternodes. By "revert to that market where we belong" I was referring to store-of-value market that can compete ahead of bitcoin on utility. But if store-of-value does not perform as well as bitcoin, you have to accept we won't be as investable as bitcoin no matter how many functional features we have. Maybe more useable, that's all.


I didn't say it was the only way, I said it was the only way if you don't have extremely high utility, like in the 6 or 7 figures of transactions per day or if your blockchain model involves consumption of its own tokens for services. Those blockchains are not based on commodity store-of-value type archetypes. They're more of an equity type investment where service activity is everything. Gold sits in vaults and does nothing to store value. Kodak was investible while emulsion film was in fashion. As soon as it wasn't it ceased to store value as an equity investment.


There isn't if you keep on drawing that value down. That's what a non-performing profit margin is - a drawdown on capital.


I don't really get this line that high volume trading equals lower price. Litecoin has had an extremely high liquidity market since the dawn of time - when Bobby Lee listed his brother's coin on BTC China. The idea would be that price rises, not falls. It doesn't matter how many masternodes change hands.

Non-performing masternode margins are a slow-rot on the capital value of the chain. Anybody who receives a weekly payment notice from Dashcentral knows that that is un-earned income and it grows larger as the price rises. At the height of the market I was receiving $1820 per week in Dash and making no greater contribution to the network than I was at $60. I had to pay tax on the near full amount as if I had received it in fiat because I had no costs, which means that you need to constantly keep selling. How do you expect investors to buy into that kind of economic bloatedness ? It isn't scaleable while mining is. Mining margin does not increase with price in this way. (As a percentage of turnover. Of course it can do as an absolute amount which is why it can support enormous multi-million pound businesses now while masternodes can't).

Nor is running a node like renting an apartment where that income is sourced externally and the free market can set your margin at a competitive level without devaluing the capital value of all property in the town. Dash market DOES have to do that because masternodes cannot compete with each other on margin - there's no significant cost base there for any of them to do so.

You have to remember that by reversing the current policy we'd be immediately choking off rewards to masternodes and that would stop some portion of that 6500 coin-per-week supply being dumped on order books at a zero cost base. These coins are profitable at about any price above zero. You can crash the market cap with the exchange of just 1 coin at a low price if it's the last trade to occur so you don't need anything like all of those 6500 coins to hit the market, only a minority proportion of them being continually sold at market price (instead of being bid for) to be chronically corrosive. Like I say, the same does not go for mining revenue. The fiat that it raises goes straight back into the chain by way of raising the opening price of the next block. The lost capital is recycled.

The scarcity value in the NEXT BLOCK is everything in a mined coin. If the price of that one block can be raised and sustained then you've broken the cycle of capital rot and a virtuous cycle can start to be established instead of the viscous one we currently have.

That's my view of the situation.

That isn't what makes crypto "valuable" (as in "store of value"). Mining is what makes it fundamentally valuable because it implements a competitive restriction to the supply which is quantifiable in monetary units. That then sets a base price for secondary markets (where previously mined coins change hands).

Utility features can make it a great means of exchange, but unless you have a monopoly on them they're useless as a store of value. Where Dash DID have a monopoly was in inheriting bitcoin's store of value mechanism (a fully mined crypto) but making it far more versatile as a means of exchange. I'm suggesting we revert to that market where we belong and compete with bitcoin, not Visa.


You can only get away with that if you have massive amounts of utility, because it's the utility that's being tokenised, not the capital that went into creating the token in the first place. That's the difference between mined currencies and tokenised ICOs. Look at this chart and compare it with the marketcap rankings. The only reason that anything gets away with existing in the top-20 marketcap with a low activity level....is if it's mined.

Dash has BOTH a low activity level and now its ditching its mined blocks as well: double negative and the market is sinking us for it.


We're at exactly the nodecount we were 2 years ago with half the marketcap.


I'd do it instantly. Like right now. I think it would be bullish. There are plenty of takers for nodes and the price would take an instant boost from the sudden restriction in supply & hike in scarcity value. Ok, miners get the supply instead of masternodes but that would be a GOOD thing because it would inject a sudden shock of profitability to mining which would immediately raise the competitiveness for the primary supply (and thereby the price of new blocks - ones that were previously given to masternodes for free). Masternodes wouldn't feel any hit in that event because the market has been so volatile in the last few years that their main ROI comes from the capital gain or loss of their collateral, not from the reward itself.

You'll have takers for masternodes at any price (as long as the reward is positive in terms of margin over hosting cost).
Stabilising the capital growth is what matters IMO.

When there's no net growth in masternode count (equilibrium point), nor any service investment requirement from nodes in exchange for receiving coins, then masternodes become no different from a miner with a zero cost base.

Think about that for a moment.

What do you think would happen to bitcoin's value if the chain suddenly gave half its miners their reward at zero cost ? It would collapse overnight to a new equilibrium value, likely to be well below where it is now.

That is exactly what Dash does - and, exactly as described above, its Satoshi price in particular has done nothing but collapse, more or less in a straight line, since we hit the approximate 5000 node equilibrium level.

Now, a Dash masternode requires an investment of around $66,000. A bitcoin miner can invest in $66,000 worth of mining rig OR bitcoin itself, but they still won't get any coin for free. They need to put that rig to work on the chain and invest capital into the chain by way of raising the difficulty (scarcity value) to a near equivalent amount to the value of the coin they extract. That goes for ALL MINERS. There are none to whom the chain makes coin available at a zero cost base.

So at equilibrium nodecount, Dash is effectively turning half of its mining force into a charity by issuing them coin at a near-zero cost base. It doesn't even require any service provision investment from those "miners" in return for being issued coin.

Therefore, the argument over whether "actual" miners run masternodes or not is moot. The aggregate effect is the same in terms of capital value flows because if you set the difficulty level to zero for half your miners, you'd have effectively a masternode. Having "coins locked up" does not generate any new value. The application of hashrate to newly emerging blocks does. Absorbing service-provision costs in response to service demand also does, but masternodes are not doing that.

The way out of this is to set margins at parity. That way the free market doesn't have to do it for us with recourse to the capital value of the whole chain. (It only has to do that because it can't access masternode margins independently of mining margins. It's fixed by the protocol).

...because they're the largest single group of masternode owners since it allows them to mine at far lower cost than would be possible in other chains ? which would explain why:

1. Dash keeps accumulating hashpower in spite of reduced mining incentive
2. loss of capital/scarcity value from the chain (since only 4 blocks of 10 are effectively exposed to that hashpower)

Even if this weren't the case it would be only a matter of time till it was because it's a business model that Dash protocol supports. This "gaming" of the reward ratio due to the fact that the MN coins emerge into the hands of their holders with a zero cost base and so are able to subsidise uneconomic mining from the capital value of the chain. (Masternodes are just mining with a zero cost base).

The cost is therefore paid by regular holders through capital loss. IMO we need to plug this leakage by radically restoring the (#tightShip) mining reward and eliminating the (#cruiseShip) uneconomic masternode rewards.

So the answer is simple:

#nodesAreNotACharity
#setMarginsAtParity

Then capital is retained, the protocol cannot be gamed and the chain becomes investible again.

I would remind you, despite your continual attempts to evade the central argument...

A miner cannot pull a coin out of the chain without investing an equivalent amount of scarcity value back INTO the chain.

A masternode can.

The chain therefore loses capital value on a chronic basis.

Like driving with the brakes on.

#notRocketScience

Don't over-dramatise.

I'm drawing the community's attention to the fact that it's trying to have its cake and eat it by continually drawing revenue from a finite capital asset by running uneconomic margins that are not re-invested.

A miner cannot pull a coin out of the chain without investing an equivalent amount of scarcity value INTO the chain.

A masternode can.

The chain therefore loses capital value on a chronic basis.

Like driving with the brakes on.

#notRocketScience