Very kind. Always happy to pick up a scrap of concurrence where available

(But be advised, while the principle I'm drawing attention to may be overstated at these low prices, it grows in significance in direct proportion to the price. So if we ever get back into even the mid hundreds with this many masternodes, it will become a huge problem. You cannot compare with early 2017 because the nodecount was still growing at that point).

Note that sharp discontinuity in gradient in January 2018. That's when the dump starts and just doesn't stop. That discontinuity co-incides with when the masternode count got saturated and started to level off. The price can't be sustained unless the nodecount is growing. As soon as the nodecount hits a ceiling, the price crashes and keeps crashing till the mining/MN profitabilities get back to near parity. It's just normal, free market forces at work whittling away that excess margin (in dollar terms).

You can see that growth is steady and healthy up to a point at the end of 2017. After that it starts a descent and can't even get a breath. It's like something's suppressing it.

That "something" is the deadweight of masternode margins. They are not being spent on raising the block price the way they are in other coins. We need to get that weight off it's back to allow it to rise again and the way to do it is to set the mining/masternode margins at reasonable parity (IMO).

Could you please stop pretending I'm making an argument that I'm not making ?

It's nothing to do with the quantity of the supply, it's how it's valued by the market.

Nice one in arguing a point I wasn't making.

I was pointing out that inflating the supply on a purely numerical basis (as Dash will do with 60% of its supply) as opposed to exposing every block to competitive mining is something the the (store of value) market doesn't like.

Remember, a masternode is just a miner with a zero cost base. <-- markets have a problem with this.

They already receive less, that was my point. Masternode ROI is negative if the market wants it to be. The reward ratio is meaningless without taking account of capital loss. So yes - there may be an exodus initially, but once it stabilised again we wouldn't have this huge overhead to pass on to the market.


I don't see how this solves anything. It's just doing what peercoin did - inflating the supply on a purely numerical basis and spreading it around existing users. Look where it got them. It isn't what the (store of value) market wants. It wants high scarcity blocks, not the same cake sliced into ever thinner pieces & redistributed.

You'd have to define and denominate "reward" first. If you're only interested in measuring ROI denominated in Dash, then yes, possibly. But if you're measuring ROI in terms of purchasing power then you have to take into account capital gain or capital loss also.

In the second case, the ROI isn't determined by the Dash protocol but jointly decided between the Dash protocol and the external markets. Both have a say in how Dash is valued, and consequently the masternode ROI. In terms of purchasing power, the external market can adjust the reward ratio as it sees fit, so for us not to take account of that is suicidal and that market has been telling us we've got it wrong for a long time.

Another thing that is huge but was never taken account of in the protocol revision discussions: the problem of making the protocol only appeal to masternodes is that there's a restricted number of them and that number is already saturated for the most part. 1000 Dash has to be contiguous. That leaves the rest of the coin supply to trade as it sees fit and therefore in total control of the capital value of those nodes (see my post on Duffenomics as to how the two parts of the supply interact with each other).



The tail wagging the dog. We've all felt it- those invested in masternodes got screwed because the rest of the Dash coin supply was subject to free markets and was not getting the same return on its investment as it was with bitcoin, Litcoin, Monero, ZCash et al. (DO NOT think I'm advocating for Dash interest on non-masternode holdings - nobody gives a f* about having more Dash if it's continuously worthless. This post is about making a fixed amount of Dash have a higher purchasing power, not about how to slice a cake into ever thinner slices. That's the last thing Dash needs).

With a mined coin, all there is to invest in is hashrate. That's what makes the next block expensive and if Dash only applies its hash to 4/10 of its block while others apply it to 10/10, it's a no brainer where the investment's going to go. You can't even argue on utility because that hashrate thing is so powerful, the coin that has more hashrate gets more utility. Ease of use doesn't get a look in.

Dash says: "we don't need all this hashrate".
Market says: "we don't need you. We want to invest in hashrate and you only apply it to 4 out of 10 of your blocks"

The "store of value" market is investing in hashrate and the coin it gets is evidence of its investment. If the coin you give it represents evidence of 40% hashrate and 60% masternode luxury cruises, the market will not be very happy and devalue us.

How do We Fix It ?
Masternodes can still get those holiday cruises, but from capital gain once the market gets its return. The way Dash can do that is twofold:

  1. make it deliver capital value instantly the same as bitcoin does (by investing their cash in mining and applying than mining to as many of our blocks as possible to
make them scarce and expensive)

  2. HAVING DONE THAT.....make it competitive. Do things that other mined currencies can't

If you don't do 1 then 2 is worthless. It costs peanuts. Paypal can do it. 1 is essential which is why we need to so three things IMO:

  A. attract as much hashrate away from other coins as is humanly possible
  B. apply it to as many of our blocks as is humanly possible. That will raise the opening price of all new blocks
  C. within that constraint, decouple ourselves from our "hashrate"competitors by providing utility that they can only dream of while maintaining or capital value offering

We can do "C" because of the decoupled protocol. The beauty of it is that is allows us to maintain an extremely high mining reward ratio (e.g. 90%) while offering utility that's impossible for single-tier coins like litecoin or bitcoin.

But we have to work with the market to do it. We have to give the market what it gets from bitcoin in terms of mining scarcity and then breakaway competitively by offering it utility on top without compromising the market's investment.

The way to do that using a rule-of-thimb rather than a supercomputer is simply to keep the masternode and mining rewards at parity as the price rises. Masternodes will be happy because their capital investment is so huge that their reward is blown to smithereens by capital loss. The reward ratio is meaningless unless they're at a capital gain.

We must therefore double down on our heritage as a mined coin IMO and make that work for investors. Then once we're commercially healthy again from an investor-miner model, restore competitively. That's where the utility comes in. But we have to have things in perspective. Mining is the engine and bodywork of the car. Utility is the colour, shape and profile. If you don't have an engine and bodywork that's competitive, no amount of paint is going to make it work for the buyer.

How much more of a kicking are we going to take before we wake up and respond to what the market is telling us ?

This is what it's buying:
           vvv

That's because markets for store of value  don't value cakes that are simply chopped into smaller pieces as an offering. They buy a mined currency for scarcity which is measured in terms of financial effort required to obtain the next block in the chain.

If you have hashrate then the market for store of value wants it to be applied to all blocks. If it has the choice between 2 cryptos, one that applies its hashrate to 10/10 blocks and another that only applies its hashrate to 4/10....it's a no brainer. It will then do 2 things:

1. devalue the blocks you created on a purely numerical basis to zero

2. demote you in ranking for store of value compared with competing mined offerings

*****************************************************
How the market for store of value sees Dash for 10 blocks.
*****************************************************
Hashrate applied to 10/10 blocks vs Hashrate applied to only 4/10 blocks.



Now imagine what happens when the price rises. Even more of the investor's dollar proportionally is going to pay for that 6-block overhead. They don't want to do that. As we move away from miner-masternode parity in terms of margin, ever less of the investor's capital is returned to them immediately in terms of fundamentals (e.g. block scarcity or service layer investment). Instead the masternode profits become absolutely enormous and ultimately unsustainable = crash back to parity. We got away with it once without disappearing completely from view. We won't get away with it again.

Sure, it's good for masternodes and may attract the odd new one, but the masternode count reaches a ceiling very quickly. Specially now that we are already at 5000. The remaining coin supply becomes so fragmented at that level that there's no chance in hell for it to be consolidated into lumps of 1000.

So what does the remaining coin holding community do ? Dump. That is the only leverage they have over masternodes. They may not possess 1000 Dash but they have the ability to crash the capital value of those that do, albeit unconsciously and organically, operating as a free market.

The way around this and to make price rises sustainable is to maintain mining and masternode margins at a broad parity, thereby recompensing investors on the way up, whatever price they enter at, in the same way that bitcoin does = by giving them a stake in the network equivalent to the capital they invested. In addition to that we have utility, which gets funded the way it is at the moment, except appropriate to the cost of supplying that service. The rest of the reward has to be delivered through capital gain (which we will have a far higher chance of seeing with a reward ratio that's optimised for the market's benefit rather than masternode's).

This just isn't true. It's a fairy tale many investors seem to believe.

If you invest your money in equity, you'll get zip dividends unless that share capital is put to work. That work has to deliver "measurable" returns - i.e. measurable enough to appear on a set of books. So you won't get anything for your "risk taking" unless the company trades successfully. If the dividends you receive simply come from splitting the share capital into ever smaller pieces and delivering it back to you, then all that will happen is you'll end up with a lot of shares - all worth nothing. (Absent a nearby friendly central bank).

And you don't get interest on a bank account just from having your money in the bank. You get it because the bank re-invested it in some economic activity that generated a return where cash flowed between real people out in the real economy. So saying that putting up 1000 Dash to secure a node is "worth" something isn't enough. The market has to agree it's enough, otherwise it will just devalue your capital (which it's been steadily doing for the last 2 years).

So with that in mind, you do in fact receive your masternodes rewards for nothing: zip bookkeeping cost above your hosting costs. The 1000 Dash and hardware costs don't qualify as a "cost" since they're both capital assets. (Perhaps the depreciation on your hardware does, so if you want to depreciate a $3000 PC over a year against $5000 revenue then be my guest. You might have a case. But if Dash goes to $500 there are no associated scaled costs with that price increase. It all goes in tax and profits which makes for ever diminishing returns for new investors as a decreasing proportion of their investment goes into the network and an increasing proportion gets p*ssed away in masternode profits that they never see returned to them).

************************************************

P.S. In writing that post I may have just stumbled upon an explanation for why Dash bottomed around $60. That was just about margin parity territory for mining-masternodes. (If you take the example of writing off $3-$4k of hardware costs over a year for hosting).

Now, if we kept those margins at parity as the price rose, we might actually give it sustainable buoyancy instead of having it run into terminal velocity and slide back down again with a crash as the margins between the two reward groups got unsustainably out of sync. Stretched to snapping point.

Maybe we should do this more often then.

Tank the price to set the bar ever-lower, then we can have more fun on the pumps. (More masternodes chucking zero cost-base coins on order books will help the cause).

Something tells me they'll be having a very nice profit taking day thankyou-very-much after successfully trading us from $104 down to $64 during the last cycle.

How much easier for them when they've got 6 out of 10 of our newly minted coins from every block generated at zero-cost to their holders and flung onto order books with a profit at any price to keep growth suppressed

The last thing we need now is more de-fi sponsored masternodes on top of the 5000 we've already got, with their rewards raining down on order books instead of going towards keeping the block-price high.

Remember: as far as the new coin supply goes, a masternode is just a miner with zero mining cost. Good luck in getting the market investor to pay anything "above zero" to acquire them.

So why not set the cost (price) of production to zero if it's so irrelevant ?

(Ah ! I just remembered. It's because it's still important to be the "masternode market leader" in hashrate. Cos even though we don't think we need it, the market still does so we need to have as little as possible....as long as it's more than anyone else....but only in our market sector so we can be the most expensive to produce there, but not anywhere else).

Our enemies are sure gonna have some fun with our new protocol priorities.

How does "%age down from ATH" serve as a substitute for the capital value of the chain according to your warped logic ?

The broken clock analogy applies to your argument, not mine - and even then, only if we were to get some massive pump out of the blue that briefly spiked us past our competitors in terms of marketcap.

An academic perspective on how (conversely) exposing ever less of the coin supply to competitive mining is a good way to tank the price and keep it tanked:

https://www.tandfonline.com/doi/figure/10.1080/13504851.2018.1488040?scroll=top&needAccess=true

Full text:
https://arxiv.org/pdf/1805.07610.pdf

Those that say that "cost doesn't drive price" are just playing with words. Cost IS price. They are different words for the same thing. If it costs me $100 to get my car fixed then that was the "price' of getting it fixed. If it costs $67 dollars to mine 1 Dash then that is the "starting price" for that 1 Dash.

So by reducing the proportion of the supply that's subjected to competitive mining, all we're doing is reducing the aggregate"opening price" for all Dash from its optimal, compared to coin that has 100% of its supply subjected to competitive mining.

You do that.

Meanwhile the market will continue to torture us till we wake up and understand how to adjust our value offering to give it what it wants rather than what we want for ourselves.

Agreed. I thought I had made this point explicit. The "price" of the next ("marginal") block is ultra important in a mined coin. You only need to tank the value of that one block to deplete the capital of the whole chain while a coin is still in its mining phase. So why make it valueless by generating it numerically in exchange for no new investment instead of subjecting it to as much competitive mining as possible ?


You already explained it to yourself above. Let me remind you: "it seems to me that if a miner spends a certain amount to get a coin, it's not so strange that a buyer on the market would be willing to spend a similar amount".

The amount the "miner has to spend on a coin" is directly proportional to its scarcity (measured in terms of how much financial effort is required to extract it from the blockchain). The mined portion of Dash's blockchain requires a large amount of financial effort to extract the coin. The masternode reward portion of Dash's blockchain requires zero financial effort to extract the coin, ergo: zero scarcity value. That portion of the blockchain WAS supposed to be supported by service value, but instead it's being drained by pure masternode profit. That profit is being paid for out of the capital value in the chain (since no service revenue is being generated) which is why the chain is being chronically decapitalised.

The way to sort this is to replace most of the masternode numerical ROI with capital gain ROI (i.e. :

1. drastically reduce the Dash denominated masternode reward which will..
2. direct a far higher proportion of new investor's capital into the "scarcity" value of the chain which will..
3. allow new investors (in the primary supply) to receive more coins, at a higher scarcity value than they did with the current protocol which will..
4. attract more investors, since they know their investment is returned to them instantly instead of going to fund masternode holiday cruises

Masternodes will benefit from this as well because under the current regime, all that's happening is they're going to get more slices of a thinner cake who's weight is out of control of the Dash protocol. The market decides it.

If we give the market what it wants (more coins per hash) then it will give us what we want (more capital gain). All we need to do then, having reasonably returned investors their capital in mining terms is compete on useability.


I think I did state why the masternode was the "first buyer". I said they shared the same custodial tier as the miner. That is very important because the blockchain protocol is the primary market in the sense that it decides what the cost of a coin is to any human being. From the point that the human possess the coin, the blockchain protocol no longer has any say over its scarcity (how much financial effort is needed to acquire it). So the Dash protocol proposes to apply scarcity as follows:

4 coins out of every 10 at maximum scarcity (you need to deliver hashrate to the blockchain to get them)
6 coin out of every 10 at zero scarcity (they are delivered at no cost, on trust that "some" unspecified value will feed back to the blockchain capital value)

That means that, to be competitive, those 6 coins need to return at least as much capital to the chain as an equivalent amount of hashpower in a 100% mined chain. I think that's impossible because there's no way that any economic entity given unrestricted cost free capital is going to fully invest it back in the chain. So the capital leaves the chain.

Any masternode owner knows this. A bus ticket that was bought with masternode revenue is a capital loss for the chain because it was paid for out of numerical gain by cutting the cake into thinner slices, not capital gain by making us more competitive.


It sounds nice but the less the protocol is able to absorb the value of that hashrate into the chain, the less it matters. The contribution of hashrate to the value of the coin is being mitigated by design and is currently being priced out by the market. Apparently "we don't need all this hashrate" and the market has listened. So you can have all the hashrate you like - it ain't gonna make zip difference to the price because it's only applied to a mere 40% of the supply and the rest of the chain is given away for free.

Miners stay alive at any price because they can simply game the protocol by balancing their masternode holdings with their hashrate capacity and difficulty adjustments. Traders stay alive because they can decide whether they go long or short Dash. The only people that get screwed (ironically) are long term holders and faith keepers who neither trade nor mine.

What I think should happen IMO is:

1. Recognise that Dash is not a stable coin, therefore it can only be "invested in" as a store of value and that is its priority

2. Inherit bitcoin's store of value model fully and return as much of the coin as possible to investors who pay for it (that means ramping the mining reward right back up as high as it can go)

3. Pay a small minority of the mining reward to nodes commensurate with costs + a reasonable margin

Don't worry. It's being priced in as we speak.

Because the miner is adding measurable value to the coin they generate while the masternode owner is not.

Lets say you have 2 identical blockchains. Everything else equal - they are complete twins in every respect except for 1 thing:

Chain A: The "price" of mining the next block from the chain is $1000
Chain B: The "price" of mining the next block from the chain is $1

That means the coin from chain A is 1000 times more "scarce" if you define scarcity as the amount of financial effort required to acquire it directly from the chain.

So the capital flow "paid to electricity and chip manufacturers" isn't lost. It comes back to the chain in the form of scarcity which in the above example made coin A 1000 times more expensive to acquire than coin B. Then that capital flow returns to the investor who gets the coins that hold that capital, so we have a balanced model and everyone's "even". Those are the core mechanics of "store of value" = keeping everyone even. Moreover, the investor's capital actually added to the value of the chain - not in a superficial exchange orderbook hoovering sense, but in a fundamental sense by supporting the "opening price" for the next block.



Meanwhile, lets look at this perspective which I disagree with:


If we're going to account for the "cost of acquisition" across the whole chain then we need to regard the masternode holder as the "first buyer" at a price of zero. (Since they occupy the same custodial tier as the miner). We can verify this in accounting terms because if the MN holder sells at a price of zero they will still break even. They still have their 1000 Dash and have incurred no significant costs in acquiring the coin. If they sell at any price above zero, it's pure profit. So the capital that the investor pays for that coin (buying it from the MN holder) isn't returned to them but instead it goes to fund the MN profit margin.



You make the point that "masternodes don't sell for nothing". Fair enough = it's up to masternodes to command a price for their "margin". But that's also analogous to American Airlines "commanding a price" of $10,000 a ticket when it costs them $1000 to run the flight. You can do it if you have a monopoly but of you don't then revenue will bleed away to competitors.

In Dash's case, revenue bleeds away because we don't have a monopoly in the mined coin space. The market can get returned "more coin" for its investment in other mined coins because far less of their invested capital is burned up in supernormal profit making from blockchain caretakers such as node operators.

Dash could fix this problem easily and still have a model where node operators are able to make a profit as I've described above. That would still give us a huge competitive attraction over bitcoin where only miners can make a "business" out of running the chain. But we need to plug the haemorrhaging capital to restore health. The current situation is not doing justice to the existing and potential value of the project.

Because the fiat raised by a mined coin sold goes straight back into the capital value of the chain (by raising the opening price of the coins from the next block).

The capital raised from a masternode coin sold does not. It goes straight into the pocket of a masternode holder.

A masternode coin held does nothing to support the capital value of the chain either (because it was numerically generated rather than competitively mined).

A mined coin held does (because the miner had to invest money in the scarcity value of the next block to get it. They effectively "bought" the coin from the chain).


Because it is and always has been a promising coin - potentially unique. We made a bad decision in depleting the mining reward even further than it already was since it was already far too bloated. That decision wasn't properly thought through IMO. But it can be reversed (it'll have to be or we're just going to see more chronic decline in ranking, notwithstanding the odd pump).

Dash is not competitive on "functionality" bells and whistles alone - there's bucketloads of that in the non-mined world. Nor is it competitive just being a bitcoin clone. There's only ever been 1 aspect in which it's competitive (and I've never argued anything else). That is as a direct competitor to bitcoin's store of value property (which is scarcity, nothing else) while being infinitely more useable as a trade currency. That means the haemorrhaging of capital value out of the chain through bloated masternode margins has to have a plug put in it so that capital value is retained in the chain and a far higher element of MN ROI can come from capital gain rather than numerical gain.

That will (for example) stop the (up to) 6500 Dash raining down on the market every week without any of the fiat they raise doing zip to capitalise the chain. Masternode ROI will then come back and there may or may not be a small "profit" element available from running a node - which again, isn't available in bitcoin. But that will depend on how efficient masternodes are at keeping costs down and delivering high service rather than just being delivered it on a plate by the protocol at the expense of cratering the value and ranking of the entire asset.

It will also give "outsiders" looking in something they can invest in with a monetary flow model that they can see works, is sustainable and viable (unlike the present one).

It doesn't matter whether they give it away or not. The point is that whatever liquidity does change hands between a masternode coin seller and buyer stays completely outside of the network. In a fully mined coin it doesn't. All coins leaving the chain are exchanged for hashrate which goes directly into raising the opening price of coins from the next block.


Really ? Here's how the "market" is weighing its options at the moment. I see no reason for it to suddenly change its priorities.

A network that gives its coins away rather than using them to double down on scarcity, is a network not worth investing in.