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Author Topic: Masternodes are mostly pyramid schemes  (Read 1548 times)
raf16
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July 17, 2017, 09:27:22 PM
 #1

Lately there is a lot of enthusiasm about coins with masternodes. Good examples of these are DASH etc. You guys probably won't like my opinion.

While the idea of masternodes is completely valid to improve network stability, value and node availability from a technical perspective. In my opinion it also is a pyramid scheme when the masternode requires a huge initial investment. Starting a masternode when it costs a high initial investment, forces you to buy in big and then freeze your assets (or lose masternode status). This causes scarcity and upward price pressure since you need to buy a lot of coins and hold them.

The new owner of the masternode then gets a daily payout for the services rendered of hosting that masternode. This payout is only interesting if the coin price follows an upward trend and not downward. As long as it holds upward more people will start a masternode causing the trend to continue. Also the total value for the first starters of masternodes increases since they bought in much more cheap.

Now imagine what happens when people realise there are way to many masternodes then needed for stability and availability of the network, and they start to cash out. Ask the question what can you do in real life with DASH that you cannot do with normal currency? Absolutely nothing!! It is brilliant technical idea, but it for the most part a big empty balloon like most alt coins.

The whole coin will come down crashing sooner or later. The people who started a masternode last are hurt the most like in every pyramid scheme.

Invest in smart blockchain idea's with a solid future plan in the real world, not in pyramid schemes. This really feels like the dot.com hype not that long ago.........most coins will go booooooooooom Wink



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July 17, 2017, 09:38:12 PM
 #2

I have noticed in the zencash slack group, many of the early investors are pushing the developers toward having higher node payouts. According to the zencash whitepaper the payouts for the secure nodes (similar to a masternode) is 3.5%, which is much lower than that of dash.

Many of the early investors are pushing for a payout similar to dash and are citing that currencies like dash have done so well due to the masternode system. They cite other currencies like chaincoin as examples of other altcoins with masternodes that have great increases on the value. The devs have been pretty good about standing with their decision to keep the node payouts low.

@raf16 Besides the masternodes, it seems like dash has been developing their payment system to hopefully allow their currency become more widely used. Do you think that dash is an intentional pyramid scheme or just a misstep in their development? If was truely a pyramid scheme why would spend so much time on developement?
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July 18, 2017, 06:51:32 AM
 #3

That doesn't make them pyramid schemes.

At least people are incentivized to hold and not just trade the majority of the available supply.

Also, if you call masternodes pyramid schemes, what about Proof of Stake coins? They're even worse in terms of the rich gets richer while staking wallets also have much less use than masternodes.

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July 18, 2017, 07:12:51 AM
 #4

Yes they are pyramid schemes, look at the latest youtube craze about Chaincoin (the Original X11 coin)
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July 18, 2017, 07:25:16 PM
 #5

Yes they are pyramid schemes, look at the latest youtube craze about Chaincoin (the Original X11 coin)

Indeed chaincoin is pumped hard at the moment. I studied there vision and website, not one unique or special functionality compared to other coins at all.

Investing in chaincoin is like investing in the Congolse Franc or the Nigerian Naira real currency. Sure you can be lucky and benefit. However most people instinctively know to stay away from those currencies Wink Why so many are perfectly happy investing a lot of money in some alt coin without any added value compared to other alt coins is beyond me  Wink

Also most POS coins are the same, one big pyramid scheme. The coins have no real life value, but scarcity and the alt coin hype drive the price up. The DEVS and ICO buyin wallets are the largest, and those guys slowly offload when the coin price increases. Same happened in the dot.com craze, companies with only nice ideas and no real products or technologies where suddenly worth billions. Because all the sheep bought in. (among those where many pension funds unfortunately)  Guess we all know what happened. Again the same happened in the mortgage crisis because now one really understood the CDO products, people just do not learn.

So I stand by my opinion that high start masternode coins in reality work like pyramid schemes, intentionally or not. Technically the devs want to achieve high performance, reliability and stability of the blockchain network. The masternodes payout could be low, and the investment starting cost of coins could also be low? The result would the same. Renting and building a VPS to host the node is no more then $5 a month cost, why should the payout be that much more then? A monthly payout of $10 would be 100% profit already Wink

Blockchain technologies are the future, however 99% coins of today will fail and become valueless. Coinmarketcap now lists 800 currency, that's actually a lot more then real currencies.
Play around with alt coins, and have fun. It is like a big casino, just do not build your pension or finance your house based on it.  Wink



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July 18, 2017, 10:42:42 PM
 #6

I think pyramid scheme is the wrong term, certainly.  Masternodes aren't a trickle up fraud system, but they're certainly a way to create a completely artificial scarcity and reward for generating such to over value a coin.  They work well now because we're clearly in the VERY wild west of this type of venture and there's little, if any, history to use to learn from.  The biggest issue ANY cryptocurrency has for long-term value appreciation and acceptance is market viability.

Basically, any coin/token has to have a PURPOSE to be used for, and then actually be USED for it.  Clear and easy example is Bitcoin's use as a currency, and it does work reasonably well in that fashion, and will likely be far better after the August code improvements.  MANY projects set out to try to solve some sort of problem but rarely do they create a more useful tool than those already available, which isn't to say they can't evolve into something better but very few issues are currently being solved by blockchain and cryptocurrency in the "real world".

So what happens is coins end up with excess supplies and low valuation.  Then developers and holders decide they need to drum up scarcity and masternodes are the new magic solution to this, plus those early adopters and whales can mint a little bit of coin on top of it with virtually zero operating expenses.  ANYONE could be an MN holder, so in that regard it's not a traditional pyramid scheme where those at the top are forcing those below them to do all the work to get them money, but it does resemble one insofar as the big money and ultra-early holders benefit by the FOMO race to accumulate the coins.

In the end, masternodes present a novel way to secure a blockchain, but DO NOT actually add or create any intrinsic value beyond the artificial scarcity they produce.  I suspect in a few months to a years time many of these fledgling masternode coins (read: not DASH, or maybe PIVX) will start to see their bottoms fall out UNLESS they find a utility beyond pure speculation/trading.
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July 18, 2017, 11:08:29 PM
 #7

That doesn't make them pyramid schemes.

At least people are incentivized to hold and not just trade the majority of the available supply.

Also, if you call masternodes pyramid schemes, what about Proof of Stake coins? They're even worse in terms of the rich gets richer while staking wallets also have much less use than masternodes.

This is not true in regards to PoS. Person X is staking 10 coins, person Y stakes 100, in other words 10 times more.
After a year of staking, person Y will still be 10 times richer than person X. Nothing changes in regards to each others wealth. It just keeps status quo.

 
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July 19, 2017, 12:56:57 AM
 #8

That doesn't make them pyramid schemes.

At least people are incentivized to hold and not just trade the majority of the available supply.

Also, if you call masternodes pyramid schemes, what about Proof of Stake coins? They're even worse in terms of the rich gets richer while staking wallets also have much less use than masternodes.

This is not true in regards to PoS. Person X is staking 10 coins, person Y stakes 100, in other words 10 times more.
After a year of staking, person Y will still be 10 times richer than person X. Nothing changes in regards to each others wealth. It just keeps status quo.

 

Compared to other stakes - just like masternode owners - but compared to people who doesn't have a stake, they're falling behind.

If the price remains, for the same price people get a lesser slice of the cake, the later they get in on it in both cases.

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July 19, 2017, 02:51:32 AM
 #9

Stakes (theoretically) have a much lower barrier for entry.  You could stake 1 PIVX and eventually earn a reward.  MNs pay more routinely but require the initial sunk cost of a preset amount.
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July 19, 2017, 10:21:39 AM
 #10

Masternodes is a death spiraling pyramid game

Lets take the blockchain proven instamined dash

20,000,000 total coins,
Daily 2000 new dash of which 45% go to miners and 55% to dash pyramid participants (10% is used to promote pyramid game)
400,000 coins yeary shared by 4558 masternodes is 88 coins per masternode 1.14% increase


Holding   Jonnys One   Devs
Coins   MasternodeCoins   MasternodeCoins
Year 01000   11000   25002500000
Year 11000   11088   27202720000


Remember you need full 1K coins to get reward, the more coins you have to faster you have another masternode.
Year 1, now Jonny gets reward form 1 Masternode and has 88 extra coins and Dev gets reward form 2700, up from 2500
Multitudes of 88 if it reaches a 1000 gets rewarded, just 88 gets nothing.
The wealth increase is not percent proportional.
It is illusionary to think that this has anything to do with a currency.
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July 19, 2017, 10:23:58 AM
 #11

It is not pyramid scheme.

You can think that this is not a fair system, but you can't say it's a pyramid scheme.
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July 19, 2017, 12:31:32 PM
 #12

I like ta call it "HODL scheme",which is more profitable as Banks Hodl sheme

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Trollollo
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July 19, 2017, 12:35:38 PM
 #13

Masternodes is a death spiraling pyramid game

Lets take the blockchain proven instamined dash

20,000,000 total coins,
Daily 2000 new dash of which 45% go to miners and 55% to dash pyramid participants (10% is used to promote pyramid game)
400,000 coins yeary shared by 4558 masternodes is 88 coins per masternode 1.14% increase


Holding   Jonnys One   Devs
Coins   MasternodeCoins   MasternodeCoins
Year 01000   11000   25002500000
Year 11000   11088   27202720000


Remember you need full 1K coins to get reward, the more coins you have to faster you have another masternode.
Year 1, now Jonny gets reward form 1 Masternode and has 88 extra coins and Dev gets reward form 2700, up from 2500
Multitudes of 88 if it reaches a 1000 gets rewarded, just 88 gets nothing.
The wealth increase is not percent proportional.
It is illusionary to think that this has anything to do with a currency.

If Johnny was smart enough,and has money,he bought more masternodes,and now he lives happy life

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July 19, 2017, 12:37:03 PM
 #14

I think pyramid scheme is the wrong term, certainly.  Masternodes aren't a trickle up fraud system, but they're certainly a way to create a completely artificial scarcity and reward for generating such to over value a coin.  They work well now because we're clearly in the VERY wild west of this type of venture and there's little, if any, history to use to learn from.  The biggest issue ANY cryptocurrency has for long-term value appreciation and acceptance is market viability.

Basically, any coin/token has to have a PURPOSE to be used for, and then actually be USED for it.  Clear and easy example is Bitcoin's use as a currency, and it does work reasonably well in that fashion, and will likely be far better after the August code improvements.  MANY projects set out to try to solve some sort of problem but rarely do they create a more useful tool than those already available, which isn't to say they can't evolve into something better but very few issues are currently being solved by blockchain and cryptocurrency in the "real world".

So what happens is coins end up with excess supplies and low valuation.  Then developers and holders decide they need to drum up scarcity and masternodes are the new magic solution to this, plus those early adopters and whales can mint a little bit of coin on top of it with virtually zero operating expenses.  ANYONE could be an MN holder, so in that regard it's not a traditional pyramid scheme where those at the top are forcing those below them to do all the work to get them money, but it does resemble one insofar as the big money and ultra-early holders benefit by the FOMO race to accumulate the coins.

In the end, masternodes present a novel way to secure a blockchain, but DO NOT actually add or create any intrinsic value beyond the artificial scarcity they produce.  I suspect in a few months to a years time many of these fledgling masternode coins (read: not DASH, or maybe PIVX) will start to see their bottoms fall out UNLESS they find a utility beyond pure speculation/trading.

Yeah, let's not call it a pyramid scheme that is unfair for the technology. But correct me if I'm wrong, I have noticed a fair amount of coins with masternodes being purchased by non-technical users who're willing to buy up masternodes hosted by the devs or others. Is this potentially also a threat to security?

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July 19, 2017, 08:02:40 PM
 #15

Well let's get not into semantics, but both POS and masternodes are structured to have the founders and DEVS profit the most. Both create artificial scarcity and a fake upward trend in the coin price. POS pays "dividends" to the coin holders based on absolutely nothing. (since the coins are created and not earned as company profit) The sheep getting in last take the biggest risks. Since the coins do not have any real asset backed value to them anything goes, the whole price is based on high expectations and trust in the coin.

Call it any scheme you want, but on the regular stock exchange these systems would be banned long ago. It is so funny seeing so many practices happening in alt coint trading which are forbidden on Wallstreet long ago. Many professional traders use it as their little playground.

Most of the Big Whales in the alt coin trading industry are well trained on the real stock exchanges and very skilled. Normal guys do not stand a chance. It is like poker against a pro, everyone can be lucky a few times, the pro always cashes out in the end.

Take the pump-and-dumps, these are prepared long in advance and the big players already own a large position long before the first rumors start to circle (which they build slowly). Then they throw in more BTC per day to create an interesting upward trend (start the pump). As soon as the first sheep are on the hook and join them, they start offloading slowly again. In the end for them it is not about 100% profit per pump, 20%+ is a great result. Wink

Realize that every $$, €€  made when you cashout your alt coins, that money is lost by someone else.
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July 19, 2017, 08:21:29 PM
 #16

Just b/c of the ridiculous chaincoin pump, it doesn't mean all masternodes are pyramid schemes.  The amount of masternodes for any given coin will naturally scale down over time as the price of the coin goes up.  There are alot less people willing to fork over the $ for a Dash masternode at it's current price vs this time last year.  The amount of new masternodes will eventually reach an equilibrium with the sellers cashing out as the price goes up.

Masternodes are very good concepts imo as they allow new coins to stabilize in price and help to dissuade Whales that got into a coin early from selling off.

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July 19, 2017, 08:26:40 PM
 #17

it seems like most altcoins that seem worth a shit have plenty of systematic incentives to keep people invested. Some are definitely in the territory of pyramid schemes...


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lijoe408
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July 19, 2017, 08:35:32 PM
 #18

Well let's get not into semantics, but both POS and masternodes are structured to have the founders and DEVS profit the most. Both create artificial scarcity and a fake upward trend in the coin price. POS pays "dividends" to the coin holders based on absolutely nothing. (since the coins are created and not earned as company profit) The sheep getting in last take the biggest risks. Since the coins do not have any real asset backed value to them anything goes, the whole price is based on high expectations and trust in the coin.

Call it any scheme you want, but on the regular stock exchange these systems would be banned long ago. It is so funny seeing so many practices happening in alt coint trading which are forbidden on Wallstreet long ago. Many professional traders use it as their little playground.

Most of the Big Whales in the alt coin trading industry are well trained on the real stock exchanges and very skilled. Normal guys do not stand a chance. It is like poker against a pro, everyone can be lucky a few times, the pro always cashes out in the end.

Take the pump-and-dumps, these are prepared long in advance and the big players already own a large position long before the first rumors start to circle (which they build slowly). Then they throw in more BTC per day to create an interesting upward trend (start the pump). As soon as the first sheep are on the hook and join them, they start offloading slowly again. In the end for them it is not about 100% profit per pump, 20%+ is a great result. Wink

Realize that every $$, €€  made when you cashout your alt coins, that money is lost by someone else.


In every investment vehicle, the founders and those first to the party profit the most.  Cryto is not different so it isnt' anything new.  POS pays "dividends" to the coin holders based on service provided.  Your lending your CPU power to support the network.  It's not like you can throw your coins in a USB, forget about them, and earn interest.

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July 19, 2017, 08:38:46 PM
 #19

it seems like most altcoins that seem worth a shit have plenty of systematic incentives to keep people invested. Some are definitely in the territory of pyramid schemes...

Dividends in the stock market are an incentive to keep people invested.  Noone would invest in anything if it didn't have the potential to increase in value.  Yes there is alot of pumping and dumping right now, but the market is still young.  I think as the market matures, and regulations come into the market there will be alot of changes.

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April 26, 2018, 05:35:10 PM
 #20

Wondering if I can bump this thread as more and more MN coins are launched.

From what I've just researched on this topic this connection is made because:

1. You buy in and start a MN, like a PS.
2. You generate profits passively, increasing your passive income and MN worth as more people buy in and hold.
3. Like a PS, once:
    - so many people buy in and the rewards/MN are so high
    - additional MN aren't needed for the network
    --> MN holders will sell and crash the price/network as few MN's exist to support the network.
4. The price and rewards are highly dependant on getting people to buy in and hold MN.
5. Those that buy in first make the most, and those that buy in last get screwed, like in a PS.

So, I see two analyses that could point toward NOT a PS.
1. The % of coins locked up in all MN of a coin is low relative to total supply. That would mean MN aren't running the show. I wonder what % is acceptable, if this is correct?
2. There is financial/economic incentive to not sell like described above.

Let's look at how ALQO's economics factor into this. This project is designed to result in a specific range of number of MN, therefore a constantly increasing number of MN shouldn't happen due to the coin economics, due to what they call "Libra Effect". IF they successfully launch their exchange called Bitfineon, investors will have equal incentives to either:

1. Run a MN or
2. Stake in their wallets or
3. Stake in Bitfineon

Although it sounds like #2 is easiest and everybody will choose that, the reward payouts adjust depending on the share of these 3. So, if everybody rushes to do #2 and the split is 10/80/10, the reward payouts to 1/3 will be super high, causing investors to shift their coins there, and thus shifting the overall balance. It is intended to result in 33/33/33 share of those 3.

Therefore, for a project like this, I don't see the pyramid scheme connection? Am I missing something?
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